Tokyo's stock exchange closed early for the first time in its history on Wednesday, in a bid to head off a meltdown after a frantic day's trading.
Japanese shares have taken a dive on the back of Livedoor's troubles
The move was sparked by heavy selling in shares following allegations of fraud at internet firm Livedoor.
The exchange suspended share dealing at 1440 local time (0540 GMT) - 20 minutes early - as the number of transactions threatened to breach trading capacity.
Japan's Nikkei share index ended down 3% or 464.77 points at 15,341.18.
It had earlier sunk as low as 15,059.52, with shares in Japanese technology stocks including Advantest, Canon and Toshiba hit particularly hard.
The number of transactions had reached about 4 million by 1425 local time, close to the exchange's capacity of 4.5 million trades per day.
The selling was exacerbated by news out of the US late on Tuesday of disappointing figures from chip giant Intel and internet search group Yahoo.
Coupled with the bad US tech news and rising energy prices, the unprecedented early closure of the Tokyo stock market had a knock-on effect on European exchanges in morning trade.
London's leading FTSE 100 index was quoted down almost 1% at 5,648.
Germany's Dax index fell nearly 1.5% to 5,382, while the Paris Cac 40 index dropped more than 1% to 4,756.
Analysts said Tokyo's early closure would damage the image of the world's second-largest exchange, which has plans to list its own shares.
The market has been hit by a number of setbacks recently, including an error which stopped trade for nearly a day last year.
"The recent spike in orders is extraordinary," said Taizo Nishimuro, the head of the stock exchange.
The shock share slump also hit the yen, which dropped to a low for the day of 115.88 yen to the dollar, before recovering to around 115.60.
The sell-off comes at a time when Japan's economy has been showing signs of tentative recovery in recent months.
Prosecutors raided the Tokyo offices of Livedoor on Monday, following allegations the company had violated Japanese securities laws.
Bosses at Livedoor denied the company broke market rules by giving misleading information to shareholders, but shares in the company dived on Tuesday, dragging the overall index lower.
One of Japan's best known internet companies, Livedoor has grown rapidly through a series of takeovers and stock splits into a group with a value of about 730bn yen ($6.3bn; £3.6bn) before the scandal erupted.
Its boss, outspoken entrepreneur Takafumi Horie, is a well-known personality in Japan.
The 33-year-old shot to fame following separate failed attempts to buy a TV company and a baseball team.
"Until the investigation on Livedoor and the fate of the company becomes clear, selling pressure on the overall Tokyo stock market will likely stay," said Tsuyoshi Nomaguchi, a strategist at Daiwa Securities.