Stocks tumble the most since 2007, as policy support measures fail to restore market faith.
The benchmark Shanghai Composite Index dived as much as 9 percent before closing at 3,209.91, down 8.5 percent. The gauge lost 12 percent last week, despite State Council granting pension funds access to equities for the first time over the weekend.
Nearly 2,200 stocks slid by the daily limit of 10 percent, while only 15 out of all Shanghai- and Shenzhen-listed companies rose on Monday.
The rout came as Purchasing Managers Index, a main gauge of manufacturing activities, fell to 47.1 in August, marking its lowest level since March 2009, according to a preliminary reading of the Caixin PMI.
Such reading has triggered market fear for a deep contraction, said analysts.
The outstanding balance for margin trading at Shanghai Stock Exchange dropped for a fourth day by 2.4 percent to 848.6 billion yuan as of Friday, according to data by the bourse.
The Shenzhen Component Index lost 7.8 percent to 10,970.29. The CSI 300 closed at 3,275.53, down more than 8.7 percent.
