The global slowdown has hit Japanese factories hard, with big firms such as car maker Toyota and electronics giant Sony slashing production and cutting jobs.
"A continued flow of bad economic data is pointing to steeper global recession, worsening concerns about corporate earnings," Lee Sun-yeob, a market analyst at Goodmorning Shinhan Securities, told the Reuters news agency.
A flood of negative news about international banks also reignited worries about the financial system, weighing on the markets.
In Taiwan, shares also plunged following Wall Street's overnight tumble with the benchmark Weighted Price Index closing down 4.44 per cent.
|Export reliant economies in Asia are feeling the impact of the global economic crisis [EPA]
The economies of South Korea, Japan and Taiwan are heavily dependent on exports, but demand has plummeted as a result of the downturn, particularly in key markets such as the US.
Lee Myung-bak, the South Korean president, has said his country faces a state of "national economic emergency" with plunging exports pushing the economy teetering on the brink of recession.
Analysts are forecasting that Asia's fourth largest economy could shrink by up to three per cent in 2009.
A growing list of Japanese exporters are also expected to slide into the red, with Japanese newspapers on Thursday reporting that Nissan Motor Company is likely to post an operating loss for the fiscal year through March.
Operating profit is seen as a direct indicator of core business performance while net profit reflects taxes, dividends, asset sales and other items.
Like other exporters, Nissan has been hammered by the double blow of falling overseas sales stemming from the global financial crisis and the stronger yen, which erodes profits on foreign sales.
Last month Nissan saw sales in the US, its most important market, fall by 31 per cent.
The latest reports follow dismal forecasts from the Toyota Motor Corporation, which last month projected a $1.69bn operating loss for the fiscal year ending March 31 - its first such loss in 70 years.
Earlier this week, media reports and analysts predicted that the electronics giant Sony, a company seen by analysts as a bellweather for the health of the Japanese economy, would also report an operating loss this fiscal year.
Sony itself has made no comment on the reports.