The NSE Nifty also dropped 165.10 points to 7,812.00 ahead of the September derivatives expiry on Thursday.
European market, which is under pressure after the US Fed's decision to hold the rates, was lower with indexes in France, Germany and the UK tumbling by up to 3 percent. Small-cap and Mid-indices were also sharply lower between 1.21 percent and 1.57 percent.
After starting on a firm note, the 30-share Sensex cracked under all-round selling and ended the day at 25,651.84, down 541.14 points or 2.07 percent. This is the index's lowest closing since September 10.
The NSE Nifty hit a low of 7,787.75 before settling lower by 165.10 points or 2.07 percent at 7,812.
Stocks in the metal space suffered the most after the entire base metal pack retreated at the London Metal Exchange (LME) on mounting global stock amid renewed concerns over slowing growth in China, the biggest consumer of metals.
The big losers in the metal segment included Vedanta, Hindalco and Tata Steel. Coal India, Tata Motors, NTPC, L&T and Axis Bank also lost big time.
Bucking the trend, Asian markets settled in the green, with Shanghai closing 0.92 percent higher while Hong Kong's Hang Seng gaining 0.18 percent.


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