A Chinese investor walks past a screen displaying prices of shares at a stock brokerage house in Hangzhou city, East China's Zhejiang province, August 20, 2015. [Photo/IC]

The benchmark Shanghai Composite Index dived 3.42 percent at 3664.29. The smaller Shenzhen Component Index retreated 2.9 percent to close at 12,584.58 points.

The ChiNext Index, tracking China's Nasdaq-style board of growth enterprises, fell 2.41 percent to end at 2,509.47 points.

This is second time that the Chinese stock market has plunged over 3 percent this week, the market shed over 6 percent on Tuesday.

After a round of positive sentiment created by reform of State-owned enterprises earlier this month, market is losing momentum and capital has started fleeing.

Massive sell-off of market-based funds has put liquidity squeeze on the market. The disappointing performance of Chinese stock market in June severely undermined Chinese investor's confidence; they started to reduce exposure of the market by sell off stock related assets.

The China Securities Regulatory Commission (CSRC) is withdrawing the easing measures designed to relieve market rout in early June, and that also contributed to today's plunge.