The benchmark Shanghai Composite Index ended down 6.4 percent after a late selling frenzy at 2749.79 points, its lowest close since Dec. 1, 2014.
The Shanghai index of the largest listed companies in Shanghai and Shenzhen dropped 6 percent to 2940.51, also its lowest since the beginning of December 2014.
After a rebound, crude prices fell back below $30 a barrel, not far from last week's 12-year lows, ending a couple of days of gains for Wall Street stocks.
China's fickle stock markets have now slumped about 22 percent so far this year on concerns about the slowing economy and confusion over the central bank's foreign exchange policy.
Many investors have lost the stomach for the market after a wild ride since last summer, when shares crashed 40 percent.
Beijing intervened to stem that rout and orchestrate a recovery of sorts, but anyone who mistook that for a bottom and bought in will have lost their shirt again in January.
"We've seen another stampede driven by panic," said Yang Hai, analyst at Kaiyuan Securities.
"There's no good news in sight，while investors are being affected by the global 'risk-off' mood."
The slump has triggered a lot of forced liquidation, he added.
Indeed, China's outstanding margin loans - money investors borrow to buy stocks - declined for 16 consecutive sessions to Jan. 22, the longest losing streak on record, with 209 billion yuan ($32 billion) worth of leveraged bets unwound during the period.
"Volume is getting very thin, as there are hardly any fresh inflows, and the process of deleveraging is continuing," said Chang Chengwei, analyst at brokerage Hengtai Futures.
Investors remain wary about further weakness in the yuan, too, despite assurances from Beijing that it has no intention of pushing it lower to gain a competitive advantage.
Chastened by the market's bearish reaction to an early January depreciation in the yuan, the People's Bank of China (PBOC) has since kept the yuan's daily midpoint fixing little changed. Read more:
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