The All Share Price Index closed at 2,867.58, down 1.51 percent (44.04 points) while the Milanka Price Index of more liquid stocks closed at 3,215.20, down 1.82 percent (59.56 points).
Turnover was 710 million rupees, according to provisional Colombo Stock Exchange statistics.
Janashakthi Insurance, the most actively traded stock, closed at 12.
75 rupees, down 25 cents while Lanka Cement, another actively traded share, ended at 24.
75 rupees, down 50 cents.
The indices were dragged down by falls in market heavyweights like John Keells Holdings which closed at 137 rupees, down three with over four million shares changing hands.
Distilleries Company ended at 90 rupees, down 4.
50 rupees, while Commercial Bank closed at 169 rupees, down 5.25.
Brokers and analysts have attributed recent sharp falls in the market to forced selling by investors, especially those using borrowed funds, trying to meet settlement cycles and minimize losses in the downturn.
A correction had also been expected as share prices were seen to have risen too much, too fast.
But analysts said prospects are better in the medium term as the latest crop of company earnings show an improvement and economic growth is expected to gather momentum with the end of the 30-year ethnic war.
Nagging concerns were the possible loss of the GSP Plus market access to the European Union on human rights concerns.
Bartleet Mallory Stock Brokers in a report advised investors to be on the buying side and capitalize on the present price levels.
"Hotel sector should be looked at closely with the approaching season which should propel their earnings for the fourth quarter.
"The healthy earnings reported by some of the companies operating in the banking, diversified, chemical and manufacturing sectors should encourage investors to capitalize on the recent 10 percent fall in the market and keep accumulating companies that have reported healthy EPS (earnings per share)."
Lanka Securities said they expect the market to bounce back with the fall in money market interest rates and stable foreign exchange rates possibly encouraging investors along with the release of the quarterly financials.
Investor interest on blue-chips, fundamentally sound counters and high dividend paying companies is expected to remain at high levels in the week ahead, they said.