The sentiments were further weighed down by the concerns over global growth recovery coupled with US fiscal cliff tensions and bailout uncertainty of Spain and Greece.
The Bombay Stock Exchange's 30-share sensex closed at 18,471 down 148 points.
The National Stock Exchange's 50-share S&P CNX Nifty closed down 36 points at 5,631.
The Sensex and the Nifty touched an intra-day low of 18,409 levels and 5,604 mark, respectively.
On the global front, Asian stocks fell on Thursday as investors reacted to the prospect of drawn-out negotiations over the looming US "fiscal cliff" by shedding riskier assets, but Japanese equities bucked the trend as a sharp slide in the yen lifted exporters' shares.
European shares fell for a second day running on Thursday, hit by evidence that the debt crisis has slowed euro zone economic activity and by persistent concerns about fiscal problems in the United States.
Economic growth in Germany, Europe's largest economy, cooled to 0.2% over the July-September period compared with the previous three months, while data due later is expected to show the wider euro zone has slipped back into recession.
Back home, the rupee fell against the American currency on sustained dollar demand from banks and importers amid weakness in local equities.
On the sectoral front, BSE Metal and IT indices plummeted by almost 2% followed by counters like FMCG, Auto, Healthcare, Oil & Gas, PSU and TECk, all declining by 1% each.
However, BSE Consumer Durable and Realty indices gained by nearly 2% each.
Software shares like Wipro, Infosys and TCS plunged by 2% each on concerns over outsourcing orders from US-based clients as world's biggest economy struggled to fight tax issue with the Congress.
Index heavyweight Reliance Inds slipped nearly 1% as the company reported a further decline in natural gas production from its eastern offshore KG-D6
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