Midfielder Park Jong-woo was due to have picked up a bronze medal during a ceremony at Wembley, but he could not be seen on the podium alongside his teammates, and his name was not announced over the public address system.
The 23-year-old midfielder had been pictured the day before seeming to hold up a sign which read "Dokdo is our territory" following his team's 2-0 victory over Asian rivals Japan.
The incident risked inflaming an already tense political situation between the two countries over the islands which are known as Takeshima in Japan and Dokdo in South Korea, and which lie equidistant from the two nations.
On Saturday, Japan said it would take the territorial dispute to the International Court of Justice, after South Korean President Lee Myung-bak made a surprise visit to the islands this week.
After the visit, Japan recalled its ambassador to South Korea.
"We have opened an inquiry and have asked the National Olympic Committee of the Republic of Korea for an explanation," the International Olympic Committee said in a statement on Saturday.
It called on South Korea's National Olympic Committee to take swift action and had urged the player not to attend the ceremony.
FIFA has opened disciplinary proceedings against him, who has until August 16 to respond, the international soccer governing body said in a statement.
South Korean NOC chief of staff John Moon told Reuters before the ceremony: "We just heard about what happened yesterday, we are looking into this incident but we are taking it very seriously.
"According to the IOC rules politics has no place in sport."
An official for the Japanese NOC said he was unaware of the incident.
It is believed the sign was shown long after the game had finished, in which South Korea won their first Olympic football medal.
The photographs swiftly spread on Twitter after being published by a Korean news agency.
Played at the Millennium Stadium in Cardiff in front of 56,000 sports fans, it had been a fiercely contested match during which seven yellow cards were shown, four for the Koreans and three for Japan.
The disputed islands are believed to contain frozen natural gas deposits potentially worth billions of dollars.
Lee became the first South Korean leader to make the trip to the islands, which have been a persistent irritant in relations between the two countries.
Officials in South Korea said Friday's visit was meant to highlight the islands' importance as a natural reserve and was not aimed at stirring up trouble.