The coronavirus spread from Wuhan in central China to several other cities and abroad, just as millions of people prepared to travel for the Lunar New Year between Jan. 24 and 31.
The outbreak also shook global financial markets as investors recalled China's Severe Acute Respiratory Syndrome (SARS) epidemic in 2002-2003, a coronavirus outbreak that killed nearly 800 people.
The World Health Organization is set to determine whether the virus outbreak is an international public health emergency in a meeting on Wednesday.
Sentiment across Malaysian equities dipped further after the central bank said downside risks to growth remained, after it unexpectedly cut its key interest rate <MYINTR=ECI>.
"We believe the sell-off is mostly a knee-jerk reaction to the rate cut, as even though the cut was expected no one expected it to come as early as January," said Imran Yusof, senior analyst at Kuala Lumpur-based MIDF research.
Heavyweight lenders Public Bank and Hong Leong Bank ended down 2.4% and 3.6%, respectively.
Vietnam stocks hit their highest close in over two months, with heavyweights Vinhomes JSC and Joint Stock Commercial Bank for Investment and Development of Vietnam ending 2.2% and 2.8% firmer, respectively.
The strong performance of the banking sector and European Union backing for a trade deal with Vietnam has benefited the index, said Tran Minh Hoang, chief economist at Vietcombank Securities.
European Union lawmakers gave initial backing on Tuesday for a free trade agreement struck with Vietnam, the bloc's most comprehensive such pact with a developing country.
Banking and real-estate sectors helped the Singapore index close slightly firmer.
Lender DBS Group Holdings advanced 0.4%, while real estate developer Capitaland Ltd closed 1.3% firmer.
(Reporting by Soumyajit Saha in Bengaluru, Editing by Sherry Jacob-Phillips)
By Soumyajit Saha