The Shanghai Composite index fell nearly 9% before recovering slightly, while commodity prices also slumped.
Manufacturing, materials, and consumer goods companies are among the hardest hit, as healthcare shares soar.
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 is also pumping an extra 150 billion yuan ($22bn; £16.3bn) into the economy, 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 on Monday, the majority of which was already planned. The liquidity boost is the largest single day addition on record.
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. Wall Street's S&P 500 index, on Friday notched up its worst week since October.
BDST: 1145 HRS, FEB 03, 2020