China's main share index slumped 6.5 per cent today after the country's government tripled its tax on share transactions.
The Shanghai Composite index fell 281.8 points to close at 4,053.1 after Beijing increased stamp duty on share trading from 0.1 per cent to 0.3 per cent.
Markets across Asia and Europe also took a dive following the move, taken by the Chinese authorities in a bid to subdue the nation's burgeoning stock market.
Bourses in Hong Kong and Japan both closed down, while in London the FTSE 100 opened more than 50 points lower at 6,556 - a fall of 0.5 per cent.
However despite the rut, analysts predict that the dip in share prices is not likely to last.
Moves by Beijing to cool share prices come as the Shanghai Composite Index reached a record high yesterday after climbing 62 per cent this year.
The index, which rose by 130 per cent in 2006, has leapt in value due to an increasing number of domestic investors in China who are choosing to invest their spare cash in shares.
Figures released last week showed that some 300,000 brokerage accounts were opened each day.
The feverish activity has prompted fears that a stock market bubble is being created and could soon burst, with former US Federal Reserve chairman Alan Greenspan warning last week that a "dramatic contraction" in Chinese share prices could hit other markets.
Billions of dollars were wiped off the value of stock markets across the globe in February after the Shanghai index dropped sharply when the Chinese government introduced tough new measures to try and stop investors buying shares with borrowed cash.
However analysts are confident that even a sharp correction would have little impact on China's booming economy, with shares representing only a small proportion of the private wealth held by individuals.
Commenting following today's rut, Thomas Gruener from Landesbank Berlin, said: "This could trigger a correction, but we don't see a change in the overall trend.
"The environment for equities is still very good," he added.