The 30-scrip sensitive index (Sensex) of the BSE, which opened at 16,210.37 points, closed at 16,008.34 points, 158.79 points or 0.98 percent down from its previous close at 16,167.13 points.
The Sensex touched an intra-day low of 15,952.54 points. It had closed Monday 471 points higher.
The 50-scrip S&P CNX Nifty of the National Stock Exchange also ended lower at 4,805.1 points, down 0.95 percent or 46.2 points from its previous close.
Broader markets also ended in the red with the BSE 500 index closing 0.97 percent lower. The BSE midcap index shed 0.56 percent, while the BSE smallcap index closed 0.18 percent down.
Realty, banking, oil and gas and consumer durables stocks saw some amount of profit booking after Monday's rise, while FMCG and healthcare scrips posted modest gains.
The market breadth was negative, with 1,219 stocks advancing and 1,515 on the decline. Another 118 were unchanged.
Among gainers on the 30-scrip Sensex were: Bajaj Auto, up 2.06 percent at Rs.1,649.40; M&M, up 1.6 percent at Rs.725.05; Hindustan Unilever, up 1.25 percent at Rs.387.5; and Hero MotoCorp, up 1.24 percent at Rs.2,060.15.
Among the losers on the benchmark Sensex were: Bharti Airtel, down 3.8 percent at Rs.373.45; Jindal Steel, down 3.34 percent at Rs.491.55; RIL, down 2.3 percent at Rs.765; and Tata Power, down 2.23 percent at Rs.91.95.
Foreign funds were net sellers Tuesday, data available with the Securities and Exchange Board of India (SEBI) showing that foreign institutional investors sold stocks worth $42.45 million.
Asian markets rose Tuesday amid reports that European policymakers were looking at radical steps to get the eurozone out of the debt crisis. Among some of the steps that are apparently being considered is that countries cede control of their respective budgets to a central European authority.
The Japanese Nikkei closed 2.3 percent higher at 8,477.82 points. Hong Kong's Hang Seng closed 1.21 percent up at 18,256.2 points.
The Chinese Shanghai composite index ended 1.23 percent higher at 2,412.39 points.
European markets were subdued with traders still unconvinced that lawmakers could come up with concrete steps soon enough to stem the crisis.
The UK's FTSE 100 was ruling 0.56 percent up at 5,342.39 points, DAX was trading 1.26 percent higher at 5,817.78 points.
The French CAC 40 was ruling 1.11 percent higher at 3,046.33 points.