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Can South Korea become the next Vegas or Macau?

South Korea's first foreign-owned casino has sparked excitement over the country's potential to rival the likes of Vegas, Macau or Singapore as a casino hotspot, but analysts told CNBC strict regulations are dampening its chances.

South Korea's casino revenues are roughly a sixth of the size of revenues from Las Vegas's casinos alone, analysts told CNBC, but the country only allows foreign passport holders to gamble at present, a key obstacle for growth.

(Read more: Lippo, Caesars get approval for casino in South Korea)

"Today it's a foreigners-only market," said Grant Govertsen of Union Gaming Research Macau Limited.

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"The gaming [casino] market in South Korea generates roughly $1.3 billion, while Singapore's comes in slightly over $6 billion and Macau's at $45.1 billion. Until regulations are changed to allow locals to gamble, South Korea will pale in comparison, and it doesn't look like that is going to happen any time soon," he added.

The new resort is a joint venture between Las Vegas based Caesars Entertainment Corporation and Hong Kong based property developer Lippo, and will be built near Incheon International airport, west of Seoul, South Korea's tourism ministry said in a briefing Tuesday.

President Park Geun Hye recently enabled foreign operators to compete against South Korea's 17 existing casinos as part of an effort to rebalance the economy away from being dependent on exports.

Aaron Fischer, head of consumer and gaming research at CLSA Asia-Pacific markets, told CNBC the Caesars-Lippo venture marked a positive step for South Korea in terms of the scale of investment.

"The big difference between this project and South Korea's existing casinos is that this is a major step up in investment being around US$2.2 billion when completed," he said.

"If companies spend enough money they can create an attractive destination that includes a premium offering of hotels, shopping, restaurant and gaming," he added.

(Read more: Macau casino stocks set for 'watershed' year)

But even though the opening of the Caesars-Lippo casino would be a positive step in terms of the size of investment, Fischer said he doubts South Korea would ever rival the likes of Macau, Vegas or Singapore.

"If it was the first of ten projects similar in terms of the size of investment then yes, you could see the market expanding significantly, especially given its proximity to China, but we are not there yet," he said.

"Restrictions on locals gambling there are of course also capping the size of the market," he added.

(Read More: Macau gambling revenue surges 40 percent in Feb)

Chinese visitors make up a third of tourists travelling to South Korea. The country plans to draw 10 million Chinese visitors a year by 2020, a 53 percent increase from 2012, data from Korea Tourism Organization showed.

Japan's Sega Sammy Holdings and casino operator Genting Singapore are also seeking licenses to build casino resorts in South Korea.

—By CNBC's Katie Holliday. Follow her on Twitter @hollidaykatie.

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