The bellwether Nifty plummeted by a whopping 107.80 points, or 1.41 per cent, over the last close to end at 7,542.10, a level not seen in several weeks.
All sectoral indices were hit hard with realty crashing by a massive 5.28 per cent, metal 3.23 per cent, infrastructure 3 per cent, financials 2.31 per cent, energy 2.04 per cent and auto 1.75 per cent.
Though the market got off to strong start, buoyed by a sharp rebound in industrial growth - which rose to a 13-month high in April - and a drop in consumer inflation in May, it failed to maintain the uptrend and suddenly crashed, spooked by unfolding crisis in Iraq.
Escalating violence in Iraq, the second biggest OPEC producer, pushed brent crude to USD 114 a barrel - a nine- month high - as fears over global energy supply disruption took centre stage with the United States threatening military action against Islamist militants linked to al Qaeda.
India, a major crude importer, is quite vulnerable to any spike in global oil prices, as it would have adverse impact on its economy.
However, according to a trader, the Iraq factor was over-played as the shares crashed mainly due to profit booking by investors after the recent record-breaking rally.
Meanwhile, other Asian markets ended mixed.
The sell-off took a heavy toll on shares of oil marketing PSUs and oil producers. HPCL tanked 8.31 pct, IOC 5.32 pct, BPCL 5.02 pct, Oil India 3.61 pct and ONCG dropped 1.54 pct. Other key losers included DLF, NMDC, Hero Moto, Tata Steel, Axis Bank, NTPC, Jindal Steel and Bank of Baroda.
Ignoring the downtrend, HCL Tech, HUL, TechM, Infosys, M&M, United Spirits, Dr Reddy's and UltraTech posted gains.
Turnover in the cash segment rose to Rs 22,645.27 crore from Rs 18,474.97 crore yesterday. A total of 13,295.51 lakh shares changed hands in 90,25,021 trades, while the market capitalisation stood at Rs 86,20,260 crore.