The blue-chip CSI300 index <.CSI300> fell 1.7 percent to 3,469.41 points, while the Shanghai Composite Index <.SSEC> lost 1.2 percent to 3,204.71.
Nearly all main sectors lost ground, with real estate <.CSI300REI> and infrastructure <.CSI300II> shares the hardest hit, falling 3.7 percent and 4.0 percent, respectively.
Industry-leading blue-chips including Gree Electric (>> Gree Electric Appliances Inc of Zhuhai) and China Vanke (>> China Vanke Co., Ltd.), which had previously soared on share purchases by insurers, tumbled after Liu Shiyu, chairman of the China Securities Regulatory Commission (CSRC) on Saturday condemned "barbaric" leveraged buy-outs by certain asset managers.
More than 20 stocks fell by their 10 percent daily trade limit, a rare scene since June when stocks plunged after Britain voted to leave the Europe Union.
Chinese markets had been trending higher, bolstered by a heated buying in modestly-valued big-caps.
The tech-heavy ChiNext sub-index <.CHINEXTC> which is the equivalent of the Nasdaq <.IXIC>, was down 0.1 percent after Shenzhen-HK stock connect launched on Monday.
Market analysts said investors were looking to rotate into small-caps via the connect scheme, moving away from blue-chips after the stern comments by the regulator.
(Reporting by Luoyan Liu and John Ruwitch; Editing by Kim Coghill)
