The benchmark Shanghai Composite Index dropped 101.31 points, or 3.1 percent, to close at 3,172.66. The Shenzhen Composite Index for China's smaller second exchange shed 1.6 percent to 1,193.73.
The central bank's order late Tuesday raising bank reserves took investors by surprise, analysts said. Investors rely on bank lending to supply liquidity and react quickly to any changes in the flow of credit.
"Investors are worried that the government is likely to take further actions to contract liquidity," said Huang Xiangbin, an analyst for Cinda Securities in Beijing.
Bank shares dived on profit concerns. China Construction Bank Ltd. tumbled 5 percent to 5.86 yuan, while Industrial & Commercial Bank of China Ltd., China's biggest commercial lender, declined by 4.7 percent to 5.09 yuan. Midsize lender Shenzhen Development Bank Ltd. tumbled 6.6 percent to 20.96 yuan.
Real estate shares lost ground on concerns that less lending might affect sales. Poly Real Estate Group, China's second-largest developer, plunged by 4.1 percent to 20.43 yuan, while rival China Vanke Ltd. lost 2.4 percent to 10.04 yuan.
Resource shares also fell on concern credit curbs might slow China's economic recovery and reduce demand.
China Shenhua Energy Ltd., China's top coal producer, plummeted 5.3 percent to 32.8 yuan, while China Petroleum and Chemical Corp., also known as Sinopec, declined by 3.5 percent to 12.85 yuan.
Aluminum Corp. of China, or Chinalco, slumped 7.8 percent to 14.24 yuan, and Jiangxi Copper Ltd., the country's biggest metal producer, dropped 5.6 percent to 38.02 yuan.
In currency markets, the yuan strengthened to 6.8267 to the U.S. dollar, up from Tuesday's close of 6.8271.
