This is the fourth fall in the last five days.
Cautious investors are not convinced that the latest round of monetary easing by PBOC -- the central bank of China -- is enough to stabilise its economy and arrest the slide in global markets.
On Tuesday and Wednesday, PBOC announced a slew of measures, including a cut in lending rate and lenders' reserve ratio, in a bid to put its growth engine back on track.
There is a feeling among Chinese market participants that policymakers should do more to fix the problem.
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Weakness in the rupee against the dollar played it role too.
The market was weighed down by sectoral losses in banking, healthcare, FMCG, IT, oil and gas and capital goods.
Profit-booking ahead of the August derivatives contract expiry on Thursday also pulled the index down.
The gauge slipped below the 26,000 level to hit a low of 25,657.56 before ending down 317.72 points, or 1.22 per cent, at 25,714.66.
The 50-issue NSE Nifty broke below the 7,800-mark, down 88.25 points, or 1.13 per cent, to 7,791.85.
BSE banking index suffered the most losing 1,68 per cent.
In the 30-Sensex pack, 18 ended with losses.
While the small-cap index rose 0.16 per cent higher, mid-cap dropped 0.79 per cent.
The selling pressure remained as foreign investors net sold shares worth Rs 2,080.01 crore yesterday, according to provisional data.
Chinese stocks fell for the fifth consecutive session and European stocks were sharply lower in early trade.