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.
The Asian Development Bank on Tuesday cut its estimate for China's growth to 6.8 percent for 2015, down from its previous forecast of 7.2 percent and below 2014's 7.3 percent growth rate. It expects the growth rate of the world's second largest economy will fall to 6.7 percent in 2016.
Separately, Barclays also slashed its growth outlook on Tuesday for China to 6.6 percent and 6.0 percent for 2015 and 2016, from 6.8 and 6.6 previously.
The slowdown has also prompted market calls for bolder stimulus measures from Beijing and the country's central bank. Economists are hoping for greater clarity about the economy and policy in the context of President Xi Jinping's visit to the U.S.
"For the rest of this year, we continue to expect accommodative monetary policy with one more 50 basis point cut of the reserve requirement ratio in Q4," said Yang Zhao, economist at Nomura.
"We maintain our call for fiscal policy to play a larger role in bolstering growth, with the fiscal deficit widening to 2.8 percent of GDP in 2015 from a budgeted 2.3 percent."