Traders attributed the steep fall in financial markets to sharp selloff in international currency and stock markets as investors reacted to China's economic problems, the outlook for US interest rates and sliding oil prices.
Brent crude for October delivery slid to USD 46.31 per barrel, a level last seen in mid-January.
Amid sell off in equities, gold considered as a safe bet continued its upward journey for 11th straight day, its longest rising-run this year, by gaining Rs 365 to over 6-week high of Rs 26,700 per 10 grams in the National Capital.
Globally, gold jumped to over one-month high of USD 1,139.59 an ounce in Singapore.
Broader NSE Nifty fell below the 8,400-mark, tanking 122.40 points, or 1.44 per cent, to end at 8,372.75. This is Nifty's biggest single-day percentage fall since July 27.
The 30-share BSE Sensex lost 323.82 points, or 1.16 per cent to settle at 27,607.82.
Selling pressure was broad-based, while metal, realty, FMCG, banking, consumer durables, power, capital goods, auto and oil & gas counters were the worst hit.
In overseas markets, Key indices in China, Japan, Hong Kong, were off up to 3.42 per cent. European markets were too trading in negative zone on mounting concern that global growth is weakening and uncertainty about the timing of a US rate increase.
In the forex market, the rupee fell sharply by 27 paise to end at new two-year low of 65.54 against the dollar following renewed demand for the US currency from importers and some banks.