A paramilitary police officer stands guard in front of red flags at Tiananmen Square in Beijing, China.

China took steps to rein in the rapidly growing and lightly regulated market for online micro-lenders in the government's latest crackdown on internet finance, sending shares of U.S.-listed Chinese financial firms into a tailspin.

A top-level Chinese government body issued an urgent notice on Tuesday to provincial governments urging them to suspend regulatory approval for the setting up of new internet micro-lenders, sources who had seen the notice told Reuters.

The multi-department body, tasked by the central government to rein in risks in the internet finance sector, also told local regulators to restrict granting of new approvals for micro-loan firms to conduct lending across regions, according to the sources.

The information office of the State Council, or Cabinet, referred Reuters to the People's Bank of China (PBOC) and other regulators when asked to comment. The PBOC has yet to respond to a faxed request for comment.

Beijing started a relentless crackdown on the internet finance sector last year, issuing guidelines and rules to regulate online financial activity following a spate of scandals, frauds and high-profile peer-to-peer (P2P) failures.

The clean-up has led to the creation of a top-level body comprising government entities that include the central bank and the banking regulator.

The crackdown on micro-lenders comes as authorities warn about rising household debt, which includes mortgages and consumer loans.

Unsecured consumer lending via Chinese online platforms more than tripled last year to almost $140 billion, according to a recent report by the Cambridge Centre for Alternative Finance.