The 30-share Sensex plunged 562.88 points to settle at 25,201.90. Today's closing was the lowest level since July 14, 2014 when the index had closed at 25,006.98.
Following the sharp decline in stocks, the market capitalisation of BSE-listed companies fell by Rs 1,92,604.36 crore to Rs 93,83,643 crore.
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"Indian indices remained under pressure primarily on account of the sustained global risk-off trend, which has had its impact on stock markets across the world.
"Concerns with respect to the Chinese economy slowdown and its impact on global growth, the consequent currency volatility, and the stance that the US Fed would adopt in its policy meet a couple of weeks from now, continued to affect investor sentiments," said Hitesh Agrawal - Head Research, Reliance Securities.
Market analysts said a strong non-farm payrolls data is expected to allow the US Federal Reserve to consider a September rate hike.
Among the 30-share Sensex constituents, 28 ended the day with losses led by Vedanta, Gail, Tata Steel and Hindalco Industries.
Bharti Airtel and Coal India were the only gainers.
Sector wise, BSE realty index suffered the most, falling 3.32 per cent, followed by infra and power.
On the BSE, 2,116 stocks declined, while 574 advanced and 85 remained unchanged.