SEOUL (REUTERS) - Tens of thousands of South Korean taxi-drivers held a massive rally on Thursday (Oct 18) in Seoul, the capital, saying a carpooling service planned by the operator of the country's top chat app would threaten their livelihoods and jobs.

The protest is the latest challenge to ride-sharing services in South Korea, which has one of the world's highest smartphone penetration rates, with nearly half its population of about 51 million living in the Seoul metropolitan area.

Backlash from taxi drivers and government regulations in Asia's fourth-biggest economy have hampered new transport services launched by United States-based Uber Technologies and domestic start-ups.

Protesters wearing red headbands chanted slogans, waved flags and held up placards that read "Crush the carpooling industry which ignores the taxi industry."

"They will steal our jobs," said a taxi driver at the rally, referring to the carpooling app.

Police estimate about 25,000 taxi drivers took part.

On Tuesday, Kakao Mobility, a unit of chat app operator Kakao Corp, started recruiting drivers for its service, after having acquired domestic carpool start-up Luxi from Hyundai Motor and other investors in February.

Kakao, which wants to use its dominant position to jump-start the service matching up drivers with people seeking a ride in the same direction, said it would run the service only during commuting hours to offset a shortage of taxis.

Transport law bans the use of personal vehicles for commercial purposes, but allows carpooling during "commuting hours".

Kakao, which previously said it planned to launch the service by year-end, said on Thursday that the timing had not been decided.

"We will continue discussions with the taxi industry, related organisations and users before the service launch," it said in a statement.

The taxi drivers' protest adds to the dilemma of South Korea's labour-friendly government, after unemployment hit an eight-year high in August.

South Korea had about 270,000 taxi drivers on June 30.

As the economy loses steam, the administration of President Moon Jae-in has also pledged to promote new industries to cut reliance on big conglomerates such as Samsung and Hyundai.

"The government is in a bind," said Mr Ko Tae-bong, research head at Hi Investment & Securities. "If they keep dragging their feet over regulatory changes, South Korea will be left behind the global ride-sharing market."

In 2015, San Francisco-based Uber had to halt Uber X, a ride-hailing service using private cars in South Korea, in the face of opposition from taxi drivers and a lawsuit. Last year, the Seoul city government demanded a police inquiry into whether the Poolus, the country's top carpool start-up, violated the transport law.