Japanese and Chinese equities were sold-off on Wednesday afternoon, leading the rest of Asian stocks to surrender early gains on fears of bad bank debt and tight liquidity in China.
Japan's Nikkei and the Shanghai Composite hit one-week and two-week lows, respectively while South Korea's Kospi and Australia's S&P ASX 200 moved off multi-year peaks. Indian stocks fell 0.5 percent.
China fears in focus
Traders attributed the heavy selling to reports that top Chinese lenders including Industrial and Commercial Bank of China (ICBC) expunged about $3.7 billion in bad debt for the first six months of the year, higher than last year.
"A lot of this write-off brings Chinese banks closer to a more international standard. In the past, they've put these loans further out into their non-performing portfolios rather than instead of actually writing them off so in some respects, this improves the health of these banks," said Andrew Sullivan, director of Asian Sales Trading.
Meanwhile, a spike in short-term money rates also weighed on sentiment. The seven-day repo contract jumped as high as 4.5 percent to a one-week high after the central bank refused to inject cash into money markets for a second straight session.
Shanghai skids 1.2%
China's benchmark index fell to 2,182 points, its lowest level in two weeks and below its 200-day simple moving average (SMA) of 2,198 points.
Despite news of increased debt write-offs, shares of lenders remained resilient. Shanghai Pudong Bank rose 0.9 percent while Minsheng Bank added 0.8 percent.
(Read more: China's factory sector may contract in October)
Environment stocks took a hit after Beijing adopted emergency response measures to heavy smog that has filtered through most of northern China. Beijing SJ Environment lost 3.8 percent while SPC Environment and Beijing Capital fell 2.7 percent each.
Nikkei sheds 1.9%
Japan's benchmark index shed nearly 300 points to a one-week low as exporters lost ground after dollar-yen fell below the 98 handle. The sell-off came just hours after the index hit its highest level in nearly a month.
Automakers suffered with Nissan Motor down 1.9 percent while Honda Motor and Mazda Motor lost nearly 3 percent each. Meanwhile, consumer electronic firms like Sony and Panasonic fell 2 percent each.
Apple-related shares also gave up early gains. Murata Manufacturing tumbled over 3 percent and Daishinku fell 2.3 percent.
(Watch now: Why the Nikkei is headed higher)
Sydney falls 0.3%
Australia's benchmark moved off an earlier fresh five-year high above the 5,380 mark, snapping six straight session of gains thanks to the sudden declines in Japanese and Chinese shares.
Third-quarter core consumer prices came in stronger-than-expected and that saw the Australian dollar jump to a four-and-a-half-month high of $0.9758 against the greenback. Traders say the high inflation figure will reduce any chances of further interest rate cuts from the Reserve Bank of Australia (RBA).
Gold miners supported the index with Evolution Mining 9.4 percent higher and Kingsgate Consolidated up 5.3 percent as bullion prices approached a four-week high.
(Read more: Dollar pain may spell further gains for gold)
Insurance firms were lower as bushfires continue to rage in New South Wales and outside of Sydney. QBE led losses by 2.3 percent while Suncorp Metway fell 0.4 percent.
Kospi slips 0.8%
South Korean stocks erased gains after hitting a fresh two-year high above the 2,060 mark while the won hit a new nine-month high.
(Read more: Why they're loving tapering of taper talk in Seoul)
Daelim Industrial slumped 5 percent after announcing a 9.7 percent decline in July-September operating profit.
— By CNBC.com's Nyshka Chandran. Follow her on Twitter @NyshkaCNBC