Chinese regulators demanded on Monday an overhaul of the healthcare advertisements displayed by the country's leading search engine Baidu.

The demand came after the death of a young man who received experimental cancer treatment at a Beijing hospital. He found the treatment online.

Baidu's Nasdaq-listed shares fell by more than 3 percent in morning trade on Monday following the ruling, Reuters reported.

Investigators have also found that the hospital illegally outsourced its departments to a for profit private company and published fake medical advertisements to lure patients.

Wei Zexi, 21, a student from Shaanxi province, died from synovial sarcoma, a rare soft tissue cancer on April 12. Since September, he had spent more than 200,000 yuan ($31,000) on a type of immunotherapy at the Second Hospital of the Beijing Armed Police Corps, which he was recommended while searching for the disease on Baidu.

Before he died, Wei denounced the company online as "evil" and warned other cancer patients "not to be cheated" in comments that went viral, drawing waves of criticism against the search engine.

Baidu, the Chinese equivalent of Google, is listed on the Nasdaq exchange in New York and has a market capitalization of more than $60 billion, even after its shares fell heavily in the wake of the scandal.

Monday's ruling by the Cyberspace Administration of China said the company relied excessively on profits from its paid listings in search results and did not clearly label such listings as the results of commercial promotion.

The system "influenced the impartiality and objectivity of its search results, making it easy to mislead users, and must be immediately rectified", the statement said.

The company has been ordered to adopt a new listing system that does not fully depend on the advertising price but also considers the advertisers' "reputation". Its commercial content should be no more than 30 percent on each Web page, the ruling said.

Xiang Hailong, head of Baidu's search business, said that Wei's death has made the company rethink its responsibility.

Baidu said in a statement that it will fully enforce the regulators' demands by examining all medical-related promotions. It will also place clear disclaimers on advertisements so that online searchers can tell them from natural search results.

The company said that by Monday it had reviewed the qualifications of all related medical institutes and had stopped listing 2,518 of them. A total of 126 million promotion entries had also been removed.

A search by China Daily's for "infertility" - a popular content for medical advertising on Baidu - found on Monday night only one promotion, separated from the listings on the page, and clearly marked as an advertisement. The same search three days ago turned up an entire page of promotions.

Analysts said that changing the rules on how to conduct paid listing business will hurt Baidu's profitability in the near term, as medical-related advertisements account for about 30 percent of the company's revenue.

Tian Hou, founder of TH Capital in Beijing, said the tricky part is how to search results by reputation.

"A high reputation for medical treatment may still hurt patients," Tian said. Medical-related paid promotions are a problem for Baidu, and if they are not completely cut out, this will rekindle concerns for the company's business, Tian added.

Baidu did not immediately respond to requests for comment on how to rank paid listings by reputation.

On Monday, the central government and military health authorities also announced the investigation result into the hospital involved.

It was ordered to stop all commercial cooperation with private companies and check whether it has conducted any other clinical treatment that has not been approved.

Doctors involved will have their licenses revoked. Anyone suspected of violating the law will be transferred to judicial authorities, according to the investigation result.

The National Health and Family Planning Commission has said that immunotherapy to treat cancer is still at the scientific research stage and should not be used for clinical treatment. The hospital declined to comment on Monday.