With continuing investor pessimism over any turnaround in the global downturn, shares in South Korea also slid with the benchmark Kospi index losing 1.59 per cent.
Falls in financial stocks led the index southwards, with KB Financial Group losing 3.56 per cent and Shinhan Financial Group sliding 5.45 per cent.
China's main index, which saw a modest gain on Monday, also fell on Tuesday, with the Shanghai Composite index losing 1.26 per cent by midday after earlier hitting a one month low.
In Hong Kong the Hang Seng index opened the day 2.8 per cent lower and in Sydney the main index lost 2.5 per cent.
The falls in Asia-Pacific markets came after stocks in the United States slid to 12-year lows on Monday as the insurance giant AIG announced a record $61.7bn loss for the last quarter, the biggest in US corporate history, and received another government bailout.
The US credit crisis and recession have slashed more than half the Dow's value since it hit a record high of over 14,000 in October 2007, and many investors fear it will take a long time to regain the lost ground.
Markets in Europe were rocked after British banking giant HSBC, seen as one of the more resilient financial institutions, said that it would be seeking billions of dollars in new capital from shareholders to cope with the financial crisis.
Alarm over the AIG losses followed news that the US economy shrank at 6.2 per cent in the last quarter of 2008 - its fastest quarterly contraction in more than 25 years - which saw stock markets in Europe and on Wall Street tumble at the end of last week.
Fears of even greater state intervention in the banking sector has added pressure on banking stocks worldwide.
Last week the Japanese government said was considering measures to support the stock market, which may include setting up a stock-buying agency, similar to the way it did in the mid-1960s.