Second seed Zhang hit a crosscourt forehand that appeared to land on the line but was called out by the line judge. The chair umpire then stepped down to take a look at the mark and confirmed the ball had landed outside the line.
Zhang was incensed by the call and asked to speak with the tournament supervisor.
The match continued for one more point but the disagreement over the disputed call continued, before Toth walked up to the mark and used her shoes to erase it.
"Wait, wait, wait! Keep the mark," Zhang yelled. "What are you doing? Why would you do that?"
Zhang looked visibly distressed during the changeover and a physio was called to check on her before the world number 28 opted to retire while trailing 6-5 in the opening set of their round of 32 match in Budapest.
Tournament organisers defended the umpire's decision.
"Thousands of cases like this happen all over the world. In this situation, it is the chair umpire who counts, who has awarded the point," the tournament's communications chief Erik Siklos told state news agency MTI.
The home crowd jeered Zhang's retirement, while Toth shook hands with her before putting her arms up in celebration.
Zhang later took to Instagram to complain about the call and thanked those who supported her.
The Hungarian's behaviour was swiftly condemned by fellow players on social media.
"Absolutely disgusting behaviour," Australia's Ajla Tomljanovic (30) wrote on Twitter. "Shuai is a better person than a lot of us for shaking the ref and that girl's hand."
Australian doubles player Ellen Perez (27) said Toth had lost the respect of her peers.
"I'm actually shook by the level of disrespect from this girl... If I see this girl tomorrow I will tell her how disgusted I am."
Toth defended her decision to erase the mark.
"I didn't understand why she made such a fuss about it, that she wanted to overrule the umpire's decision," Toth told state radio Kossuth.
"I don't understand why she didn't accept it, all in all, it was she who was looking for trouble."
