In September, the Seoul High Court suspended a three-year prison term for Chung, 70, by a lower court -- while upholding his guilty verdict -- and ordered the tycoon to do public service. That enabled Chung to continue running South Korea's largest automaker without going to jail.
Prosecutors, however, filed an appeal, saying lecture and writing duties ordered as part of Chung's sentence were not proper activities for sentences involving community service.
On Friday, the Supreme Court accepted the prosecutors' argument and sent the case back to the appellate court, said Oh Seok-jung, a spokesman for the Supreme Court.
Oh said the Supreme Court made the judgment only on whether the community service aspect of Chung's sentence was appropriate. He said the lower court should review the whole sentence for Chung because the public service order was made based on the suspended prison term.
That means it is theoretically possible for the lower court to change Chung's sentence and send him to prison. The chance of imprisonment appears low because prosecutors disputed only the community service aspect, not Chung's suspended term.
The Supreme Court spokesman said the case will go back to the Seoul High Court so a new sentence can be issued. It was not decided when the first hearing on the resentencing will be held, he said.
Hyundai Motor expressed disappointment at the decision.
"It is very unfortunate that this court case has still not been finalized, especially at a time we have so many pending business issues at hand," Hyundai spokesman Jake Jang said. "We will review our options after we discuss the court's ruling with our lawyers."
In September, the Seoul High Court suspended Chung's prison term for five years, meaning he would not go to jail if he stays out of trouble during the period. The presiding judge said at the time that Chung was too important for the nation's economy to go to prison.
Hyundai Motor is South Korea's biggest automaker and a key driver of the economy. Hyundai and affiliate Kia Motors Corp. together form the world's sixth-largest automative group.
Chung was also ordered to do public service in the form of delivering lectures and writing newspaper and magazine articles on lawful management, and to fulfill a promise to donate 1 trillion won ($1 billion) of his personal assets to society.
The Supreme Court also said that a financial donation cannot be a form of community service.
Chung was found guilty of charges that he embezzled the equivalent of more than $100 million in company money to set up a slush fund. Prosecutors said much of the fund was used to pay lobbyists to gain government favors and for personal use.
Industry analysts said that while chances appear low a reconsideration of the sentence will land Chung behind bars, the top court's decision has restored an element of uncertainty to Hyundai and Chung, who is known as an aggressively hands-on manager.
"We don't know how long it would go," said Stephen Ahn, an analyst at Woori Investment & Securities in Seoul, referring to how much time the legal process may take. "That means there is some uncertainty on Hyundai Motor's top management."
Investors appeared to shrug off the Supreme Court ruling. Hyundai shares surged 4.7 percent to close at 82,300 won ($84) in trading Friday.
AP Business Writer Kelly Olsen contributed to this report.
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