Lee Jung Hwan, the chairman and chief executive of the Korean stock exchange, has attacked "unconstitutional" attempts by the South Korean Government to seize control in a power struggle that may jeopardise the country's recent provisional upgrade to “developed market” status.

A reversal of that coveted status, which was granted by FTSE index-compilers only in September and does not come into effect for another nine months, would be a significant humiliation for Seoul as the country’s economy marches towards recession.

Mr Lee’s rare outburst, made during an exclusive interview with The Times, came as the South Korean Government has intensified its efforts to squash negative media comments about the state of the economy and stands accused by key Wall Street players of being obstructive towards foreign investors.

"Hermes, Lone Star and other funds may think the Government interferes too much," Mr Lee said, referring to two overseas funds that have suffered high-profile regulatory and legal attacks at the hands of the Government. "I agree."

Mr Lee hopes that developed-market status, if it takes effect, will entice an extra $25 billion (£17 billion) of European and Asian capital to Seoul.

However, FTSE index compilers have emphasised that the battle between the exchange and the Government will weigh on their decision.

“The FTSE committee will want to wait and see what the outcome is. You can imagine all kinds of things occurring,” Paul Hoff, managing director of Asia Pacific FTSE Group, said of the control struggle. “We are monitoring the situation.”

Mr Lee's battle is with the supposedly "business friendly" administration of Lee Myung Bak, the President whose first year in office was spent firefighting an abject plunge in public approval, worker strikes and mass demonstrations in the streets of Seoul.

The Government, the chairman of the exchange said, wants to reassert control over a bourse that has been a private company since the Government exited in 1988.

At present it is unlisted and owned by a group of brokerages.

Efforts by the Government to play a greater role in the running of the exchange come amid torrid times.

Last week the central bank was forced to cut interest rates to a record low of 2.5 per cent, and the market believes that the rate-cutting cycle will have to go further as the authorities struggle with falling exports and high levels of household debt.

The Kospi, the main Korean stock index, plunged 40 per cent last year, due largely to a spectacular flight of overseas capital during September and October.

Mr Lee said that the fourth-largest Asian exchange should be braced for further turbulence; however, he believes that circumstances may stabilise in the second half of the year.

Foreign money has been returning to Korea, as overseas funds are taking strategic stakes before the implementation next month of the Capital Markets Consolidation Act, which is designed to produce a Korean big bang.

The attempt to exert greater state control over the exchange is being engineered through the Board of Audit and Inspection, which last year identified the exchange's de facto monopoly status — along with various perceived management failures — as a reason to recommend turning it into a designated public institution.

That would give the Government the right to install its own executives on the boards of the exchange and its internal regulator but would not require it to own a single share.

"The Government has declared market-friendly policies — privatisation of state-owned enterprises, global standards — but in this case, they are moving backward," Mr Lee said, adding that he regarded the Government's action as being unconstitutional.

The Government's animosity towards the exchange is understood to have followed its failure to parachute its own candidate into the chairman's position during board elections last March.

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