In an economic policy meeting last week, Xi's leadership had announced a plan to ramp up control over IT firms.
However, the blocking of the Ant Group IPO and the Alibaba probe suggests a sea change is taking place, indicating that the Chinese government may be concerned about the growing size and power.
Alibaba, the world's biggest e-commerce company by total sales volume, and another company were fined in mid-December for failing to apply for official approval before proceeding with some acquisitions.
In a short statement issued Thursday, China's State Administration for Market Regulation said that the probe is focusing on allegations that the company forces merchants on its website to sign exclusive cooperation agreements, preventing them from selling products on rival platforms.
The starting point of the investigations is the statements made by the founding chairman of Alibaba Group, Jack Ma, in recent months.
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Alibaba fell as much as 18% in Thursday trades, far outpacing its previous record one-day decline of almost 9% in 2015.
The move is "to supervise and guide Ant Group to implement financial supervision and fair competition in accordance with the principles of marketisation and rule of law, and to protect the legitimate rights and interests of consumers, and regulate the operation and development of financial services".
He has edged away from the public limelight since the IPO collapsed.
Investors also dumped shares of Alibaba's affiliates, as well as other Internet firms that risk being targeted by China's anti-trust regulators.
In a statement last week, Alibaba said Uygur-tracking facial recognition violated company values as it removed the software after heavy criticism from the global forum. Its growth will slow.
State media has also called for tighter oversight.