The Shanghai Composite index closed nearly 8% lower, its biggest daily drop for more than four years.

Manufacturing, materials, and consumer goods companies were among the hardest hit, while healthcare shares soared.

The fall came despite China's central bank announcing new measures to ease the impact of the outbreak.

The People's Bank of China (PBOC) unexpectedly lowered short term interest rates as part of its attempts to relieve pressure on the economy from the rapidly spreading virus.

It also pumped an extra 150 billion yuan ($22bn; £16.3bn) into the economy on Monday, a move aimed at ensuring there is enough liquidity in the banking system.

In total, the central bank will inject 1.2 trillion yuan into the financial system, the majority of which was already planned.

The PBOC said it could make more cash available throughout the week, as Chinese financial regulators forecast the impact on the country's already slowing economy will be "short term".

The coronovirus outbreak comes as China's economy, which is the second largest in the world after the US, is slowing, following the trade war between Washington and Beijing.

China saw economic growth of 6.1% last year - the weakest expansion in around three decades. A partial trade deal easing tensions was signed earlier this month, but most tariffs remain in place.

The falling share prices in China come after global markets were rattled by the epidemic in recent days. Last week, Wall Street's S&P 500 index notched up its worst week since October.

China's stock markets are dominated by retail investors - that's non-professional, though often quite wealthy, individuals, as opposed to institutional investors. They own a whopping 80% of A-shares on the Shanghai market, that's shares that are mainly open to Chinese investors.

That means they have a profound effect on market movements, and what they're telling us with the sell-off today is that they're scared. But it's also important to remember Chinese investors are playing catch up with falls on markets elsewhere - this is the first time mainland China's stock markets have opened for more than a week, so it is not surprising they've taken a tumble.

Still, it's a nuanced picture - and not a case of every company's shares crashing. It is a stock market divided by sectors. So shares in companies that sell healthcare products have actually gone up by some 10% - while companies that are in the manufacturing, real estate and construction sector have fallen sharply.

The key question now is how bad the effect of coronavirus will be on China's economy - and as a result, on the fortunes of its companies. The truth is we just don't know.

It is difficult to get reliable data from China; typically during the Lunar New Year period it is challenging to gauge how many people are working, or producing things.

This year - as one analyst told me - "economists are flying blind" because the data coming out of the country is scant, patchy and unreliable at best. Already, many research houses are slashing first quarter growth forecasts for China. We are essentially in the dark at the moment about the health of China's economy - which is worrying because of how connected it is to the global economy.

Analysts say the impact of the virus - which has left major cities in full or partial lockdown - could harm growth if it lasts for a prolonged period.

China's travel and tourism sectors have already taken a hit over an unusually quiet Spring Festival break, while cinemas were forced to close to try to contain the virus.

Meanwhile, numerous factories have suspended production while companies have instructed employees to work from home.

Foxconn, Toyota, Starbucks, McDonald's and Volkswagen are just a few of the corporate giants to have paused operations or shuttered outlets across China.

Analysts at Oxford Economics said they expected the economic impact of the coronavirus to be "high, but short-lived, as during the 2003 Sars episode".

"However, the scale of the outbreak and impact is set to be worse than in the case of Sars, as the coronavirus is hitting a larger part of China and its population.

"Moreover, we cannot rule out an even more serious and longer-lasting impact due to differences in behaviour of the virus, a larger effect from government travel restrictions and firm closures, and a much more connected economy this time around."