Shanghai fell 5.22 percent, or 142.38 points, to 2,583.46, marking the lowest level since November 2014.
The Shenzhen Composite Index, which tracks stocks on China's second exchange, plummeted 6.45 percent, or 89.15 points, to 1,293.90 -- its lowest point since September 2014.
It is the second plunge this week for the Chinese mainland market after both Shanghai and Shenzhen saw a drop of nearly four percent on Monday.
Other Asian markets also plunged Thursday following the worst session on Wall Street for months after US President Donald Trump said the Federal Reserve had "gone crazy" with plans for higher interest rates.
Trading in Chinese companies is suspended when their shares drop or rise by 10 percent, and around 1,000 fell to the limit on Thursday.
Banks were the biggest losers in Shanghai. Banking giant ICBC dropped 2.70 percent to 5.40 yuan while China Construction Bank closed 3.75 percent lower to 6.68 yuan.
Software companies also lost ground in Shenzhen. Digiwin Software plunged by its 10 percent daily limit to 9.09 yuan while Unisplendour Corp fell 9.37 percent to 35.98 yuan.
Brokerages also fell. Shanghai-listed Citic Securities retreated 6.07 percent to 15.17 yuan while Shenzhen-listed Shanxi Securities plunged by its 10 percent daily limit to 5.43 yuan.