Oil fell below USD78 per barrel, toppling to its lowest price of the year on concerns that a slowing global economy could crimp demand for fuel.
Japan's Nikkei 225 index plunged 4.4 per cent to 8,694.31 in the morning session, while Hong Kong's Hang Seng index plummeted 7.3 per cent to 18,998.51. South Korea's Kospi index plummeted 8.2 per cent to 1,716.05.
Elsewhere, Australia's benchmark S&P/ASX-200 index lost 4.5 per cent to 3,806.70. Taiwan's TAIEX dropped 4.9 per cent and New Zealand's benchmark NZX 50 index shed 3.8 per cent.
Michael McCarthy, chief strategist at Sydney-based stockbroker CMC Markets, attributed the market turbulence to fears that the US economy was slowing down.
"We're clearly in fear territory," McCarthy said. "The major driver here seems to be weakness in the US economy.
There are fears that it's starting to stall and if that's the case, the whole global growth scenario could fall over." Shane Oliver, chief economist of Australian investment manager AMP Capital, said he was surprised that the Australian market had not stabilised today after steep falls on the previous two trading days.
"I would have thought we would have factored in a lot of the weakness, but obviously the fall on Wall Street was greater than Australian investors and Asian investors expected this time on Monday, Aug 8," Oliver told Australian Broadcasting Corp television.
The losses come on the heels of a rout on Wall Street on Monday, the first trading day since ratings agency Standard & Poor's downgraded American debt.