The preliminary Caixin China manufacturing purchasing managers' index (PMI) fell to a six-and-a-half-year low of 47.0 in September, below the 47.5 forecast in a Reuters poll.
This compares with a final reading of 47.3 in August, the lowest since March 2009. A print above 50 indicates an expansion in activity while one below points to a contraction.
The closely-watched gauge of nationwide manufacturing activity focuses on smaller and medium-sized companies, filling a niche that isn't covered by the official data.
The decline in the flash PMI was mainly led by the new orders and new export orders sub-indexes, suggesting weak domestic and external demand. The new orders sub-index fell 0.6 percentage points to 46.0 in September, while the new export orders sub-index slipped 0.8 percentage points to 45.8.
Wednesday's data weighed on investor sentiment in Asia, with stock indices in Sydney and Seoul widening losses to more than 1 percent each in the morning trading session. China stocks, however, trimmed losses to 0.9 percent, from an over 1-percent decline at the open.
"The principle reason for the weakening of manufacturing is tied to previous changes in factors related to external demand and prices," said He Fan, chief economist at Caixin Insight Group.
"Fiscal expenditures surged in August, pointing to stronger government efforts on the fiscal policy front. Patience may be needed for policies designed to promote stabilization to demonstrate their effectiveness," he added.
A recent run of disappointing data has raised concerns around the health of China's economy, leading several banks and international institutions to pare growth forecasts for the country.