SHANGHAI, Feb 22 (Reuters) - Alibaba Health Information Technology Ltd's shares plunged as much as 16 percent on Monday after China's drug regulator said it had suspended an electronic drug monitoring system operated by the firm.

The suspension of the system, designed to help track medicine sales, casts a shadow over the traceability of drugs in the world's second largest pharmaceutical market, even as Beijing looks to support domestic firms.

The China Food and Drug Administration (CFDA) said on Saturday it would suspended the Product Identification, Authentication and Tracking System (PIATS) while it drafts changes to regulations about monitoring drug sales.

Ali Health, an affiliate of e-commerce giant Alibaba Group Holding Ltd, said late on Sunday the move may severely impact its business, although it added it had not received notice from the CFDA over the operation of the platform.

In a filing to the Hong Kong stock exchange, the firm said that "almost all" of its revenue was generated from its operation of the drug PIATS system.

"There could be a material adverse impact on the company's revenue, business and results of operations" if the suspension was upheld for a significant period of time, it said.

The suspension comes after Ali Health's involvement in the platform - which allows consumers to check the authenticity of medical products online using a barcode system - was brought into the spotlight last month.

Hunan-based pharmacy chain Yontinhe Group said in January it was suing the CFDA over the monitoring system, alleging the arrangement gave an unfair advantage to Ali Health, which has its own online drug sales business.

Shares in Ali Health fell sharply in the aftermath of that announcement, fuelled by concerns the company could lose the right to run the platform.

Ali Health added on Sunday it would continue for the moment to provide technical support and maintenance services to the platform until it received formal notice from the CFDA.

"(The company) will work closely with the CFDA to continue such operations under the CFDA's direction," the company said.

China is a magnet for drug makers, hospital operators and medical device firms targeting a wider healthcare bill estimated to hit $1.3 trillion by 2020.

(Reporting by Adam Jourdan; Editing by Miral Fahmy)