This raises borrowing costs for the already financially strapped country, making it harder to raise funds.
The downgrade also means certain categories of investors, such as pension funds and insurance companies, may no longer be allowed to buy Greek debt.
Portugal's debt was also downgraded on Tuesday, leading to fears the crisis could spread beyond the two countries and further undermine the euro currency.
Greece has requested $52bn from eurozone governments and the IMF to shore up its finances but the reluctance of Germany, the largest country using the euro, to move quickly in providing assistance has sent shudders through markets.
Investors fear the money may not reach Greece to enable it to avoid default by May 19, when $12bn in bond payments becomes due.
Al Jazeera's Barnaby Phillips reports on continued industrial action in Greece
The EU president has now announced that eurozone heads of state will meet to discuss the crisis in Brussels around May 10.
Herman Van Rompuy also said on Wednesday that "there is no question about restructuring" Greece's debt, with aid negotiations "well on track".
"On the basis of a report to be finalised in the coming days, heads of state and governments will decide to activate the financing of the joint programme under negotiation now between the European Commission, the ECB [European Central Bank] and the IMF [International Monetary Fund] and of course the Greek government," he said.
"The negotiations are going on. They are well on track and there is no question about restructuring of the debt."
The German government, which is the largest single contributor to the bailout package with an $11.2bn loan, is reluctant to vote on the deal until after May 9 elections in the country's most populous state - North Rhine-Westphalia.
As a result, the meeting in Brussels is likely to take place the day after the election.
The rating downgrade left Asian markets broadly lower on Wednesday, with Japan's benchmark Nikkei share average down around 2.5 per cent in afternoon trade while Hong Kong's Hang Seng and South Korea's Kospi were both lower by more than one per cent.
On Wall Street, the Dow Jones industrial average fell 213 points, or 1.9 per cent, to 10,991.99 on Tuesday, its biggest drop since it fell 268.37 points on February 4, also amid concerns about European debt problems.
The Standard & Poor's 500 index fell 28.34, or 2.3 per cent, to 1,183.71, while the Nasdaq composite index dropped 51.48, or 2 per cent, to 2,471.47.
The FTSE 100 index of leading British shares closed down 2.6 per cent on Tuesday, while Germany's DAX slid 2.7 per cent and the French CAC-40 ended 3.8 per cent lower.
Greek and Portuguese shares were worst hit, down 6.7 per cent and 5.4 per cent respectively.
Both governments have imposed budget cutbacks against political resistance from unions at home.
But markets have been sceptical that they can push through the measures given the widespread opposition.
The ratings downgrades also sent the US dollar up more than 1.1 per cent against the euro, hitting its highest level in about a year.
At the same time, gold and treasury prices also rose as investors sought safer investments.
Barnaby Phillips, Al Jazeera's correspondent in Athens, said: "The government is running out of options and it is increasingly difficult if not impossible for them to borrow on the open market.
"It is just too expensive. So they are courting help from the IMF and EU."
Brian Peardon, a wealth adviser at Harrison Financial Group, said the markets' response was "a knee-jerk reaction". The small size of Greece's and Portugal's economies means their debt struggles are not yet a major problem, he said.
But if they were to default on their debt, other countries that hold their bonds would also suffer, and debt-strapped countries would also likely find it harder to spend more to stimulate their economies and help feed the global economic recovery.
Speaking to the AP news agency following the downgrade, Giorgos Petalotis, a Greek government spokesman, said: "This shows that the problem is broader, and concerns all the other countries and not just Greece.
|Share prices in Greece plunged
6.7 per cent on Tuesday [EPA]
"As a country, we are doing everything necessary to overcome this difficult situation, we are taking the measures and decisions that have been asked of us for sometime now."
Asked if the downgrade news means bailout negotiations need to be speeded up, Petalotis answered: "I think the need to them speed up, is something everyone can assess."
Portugal's finance minister said the downgrade would only make things worse.
"This is a decisive moment," Fernando Teixeira dos Santos said in a statement, urging political parties in opposition to his minority Socialist government to help swiftly enact debt-reduction measures he has outlined in his austerity plan.
"Regardless of the opinion we have in relation to the fairness and update of the rating, the fact is that this decision will not help markets to calm down, but will, on the contrary, contribute for their turbulence," he said.