The benchmark Shanghai Composite Index plunged 6.14 percent at 3,748.16. The smaller Shenzhen Component Index plummeted 6.56 percent to close at 12,683.86 points.

The ChiNext Index, tracking China's Nasdaq-style board of growth enterprises, dived 6.08 percent to end at 2,504.17 points.

Listed State-owned enterprises led the slump, with Jihua Group Corporation and China Jushi dropping by the daily limit of 10 percent.

After a round positive sentiment brought by reform of State-owned enterprises, market dropped sharply in the afternoon trading.

Massive sell-off of stock market based funds put liquidity squeeze on stock market. The disappointing performance of Chinese stock market in June severely undermined Chinese investor's confidence; they started to reduce exposure of the market by sell off stock related assets.

The China Securities Regulatory Commission withdrawing the easing measures designed to relieve market rout in early June also contributed for today's plunge.