This is its longest falling spell since March 2015. Global indices too remained weak in the wake of overnight losses on Wall Street and worries over Italy's struggling banking sector, which depressed Indian market.
The broader NSE Nifty cracked below the 8,000-level and closed at its nearly one-month low, whose fall was the longest since June 2015.
Resuming lower, the Sensex touched the day's low of 25,940.14 on the back of widespread losses in blue-chips, but recovered marginally to close the day lower by 262.78 points, or 1 per cent, at 25,979.60.
The NSE Nifty remained under pressure and dropped 82.20 points, or 1.02 per cent, to close the day at 7,979.10 after hovering between 8,046.45 and 7,964.95.
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The Federal Reserve's hawkish US interest rate forecast last week had led to foreign selling in emerging markets.
Sentiment remained downbeat as the cash crunch continued to rankle investors, who were worried about its impact on corporate earnings for the December quarter. Persistent outflows by foreign funds hit it further, brokers said.
Meanwhile, investments in domestic capital markets through participatory notes (P-Notes) plunged to its lowest level in nearly three years to Rs 1.79 lakh crore in end-November.
Losses in the markets were broad-based with mid-cap and small-cap index falling by 1.47 and 1.25 per cent, respectively.
From the 30-share Sensex space, Adani Ports was the worst-hit, down 3.56 per cent, followed by Tata Steel at 3.09 per cent. Others losers included ONGC, Bharti Airtel, Tata Steel, NTPC, L&T, Infosys and SBI.
Foreign funds net sold shares worth Rs 1,178.08 crore yesterday, as per provisional data.
The BSE metal index suffered the most by falling 2.78 per cent, followed by infrastructure 2.06 per cent, consumer durables 1.90 per cent and power 1.67 per cent.
Japan's Nikkei fell 0.09 per cent while Hong Kong's Hang Seng shed 0.80 per cent. Shanghai Composite Index, however, edged higher 0.07 per cent.
European markets were down in early trade with London's FTSE falling 0.11 per cent, Frankfurt 0.10 per cent and Paris 0.05 per cent.
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