Japan's Nikkei stock average fell nearly 5% to hit a new low for the year.
Technology stocks and bankers were particularly hard hit as Tokyo followed the lead of the Dow Jones Industrial Average which recorded its largest day fall ever.
In Australia, the benchmark S&P-ASX200 had fallen 4.3% within 15 minutes of opening and the broader All ordinaries was 210 points lower, or 4.34%.
The Australian futures market indicated that the ASX indices could fall by up to 7% in day of market turmoil.
As in Japan, Australian bank stocks were the hardest hit with the Commonwealth Bank of Australia shares falling 5.17%, Westpac dropping 4.92% and the National Australia Bank falling 5.8%.
The NZX-50 remained down 4% as a few investors heavily sold off stock in some of New Zealand's largest companies.
However, the sell down was on light volume, indicating that most investors were sitting back watching to see how the next few days unfolded, ABN Amro Craigs broker Peter McIntyre said.
"Of significance is our currency falling back sharply as investors flee any of their risky assets, including the New Zealand dollar which is in that category.''
The US dollar fell to a four-month low against the yen but the euro and sterling have also suffered as banks in Europe succumb to the widening crisis fallout.
Investors are rushing for currencies seen as a safe haven in times of trouble, such as the yen and the Swiss franc.
The turmoil came after the United States House of Representatives rejected a compromise plan to bailout the financial industry.
In early trading, Telecom was down 16c, or 5.8%, early to $2.62, Contact Energy was down 34c,
or 4.1%, to $7.95 and Fletcher Building lost 36c, of 5.2%, to $6.55.
In the US, the Dow Jones Industrial Average index ended down 777 points, or nearly 7%, in the largest one-day fall ever.
The failure of the Bill, which would have let the US Treasury buy up bad mortgage debt from struggling banks, added to serious concerns after the credit crisis claimed new victims including Wachovia Corp and a host of European banks.
