Megabox withdrew the movie "Project Cheonan" from 27 of its theatres on Saturday, citing customer safety concerns after unidentified conservative activists threatened to stage protest rallies outside the multiplexes.
The Megabox move "does serious violence to our cultural vitality which prospers on the basis of diversity and the freedom of expression," the representatives of 11 film industry groups, including directors, producers, critics and others said in a joint statement.
The naval corvette Cheonan sank with the loss of 46 lives on the night of March 26, 2010 near the South's disputed Yellow Sea border with the North.
An investigation by a South Korean-led international commission concluded it had been sunk by a torpedo from a North Korean submarine -- a charge Pyongyang has always angrily denied.
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Produced by left-wing director Chung Ji-Young, "Project Cheonan" explores alternative explanations, including suggestions that the vessel might have hit a reef or collided with an unidentified submarine.
The injunction was denied by a court last week and the film was released on Thursday.
But Megabox's decision means there are now only nine small cinemas across the country where it can be seen.
"It's very regrettable, and I don't understand why Megabox made such a decision," Chung told today's news conference.
Cross-border tensions surged after the Cheonan incident, with Seoul suspending most trade and aid with North Korea.
In November the same year the North shelled a South Korean border island, killing four people including two civilians and sparking brief fears of a full-scale conflict.