Banking, technology, metal and infra-related stocks bore the brunt of sell-off.
The prevailing logjam in Parliament on the coal block allocation issue dampened the overall market mood as investors scaled down their expectations for speedy economic reforms.
Fears of a deeper global economic slowdown on the backdrop of disappointing manufacturing data from China and Germany amid eurozone recessionary fears added to the gloom.
After a flat opening, trading picked up momentum on good buying in frontline heavyweights and select beaten down stocks despite sluggish overseas cues. The market soon faced volatility and drifted into the red. It remained in a tight range amid choppy throughout the session before plunging on selling in late afternoon.
There is a lot of uncertainty in the global market over the US Federal Reserve's meet later this week. Also, investors are reluctant to take fresh positions ahead of the F&O expiry on Thursday, traders said.
On the global front, Asian stocks ended lower in lacklustre trade amid stimulus hopes from major central banks.
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The 50-share Nifty oscillated between a high of 5,399.15 and a low of 5,346.65 before finishing at 5,350.25, a loss of 36.45 points, or 0.68 per cent, over the last close.
PNB, Jindal Steel, JP Associates, IDFC, Axis Bank, RInfra, Bank of Baroda, DLF, BHEL and SBIN were the top Nifty losers. M&M, Power Grid, Cairn, HUL, Cipla, Sun Pharma, ACC, Bajaj Auto, Reliance and ONGC were the index gainers.
The turnover in cash segment declined to Rs 7,578.96 crore from Rs 8,881.37 crore on Friday. Overall, 5,051.73 lakh shares changed hands in 43,82,013 trades. Total market capitalisation stood at Rs 60,40,844 crore.