The most-active iron ore futures on the Dalian Commodity Exchange ended 2.7 percent lower at 634 yuan ($93.60) per tonne. It reached a daily-trading limit of 8 percent to a record high of 652 yuan in the previous session.
"It is not surprising that iron ore prices will pull back as some traders want to secure gains and wait to see the next move in the market," said a Shanghai-based trader.
The volatile iron ore prices came as an estimated 70 million tonnes of iron ore output cut at the world's largest miner of the mineral, Vale SA, after a dam collapse in Brazil last month that killed at least 165 people.
"The consensus view was that the net impact (of the accident) on iron ore supply would be limited and short-term. Conversely, our view has been that the impact would be significant and longer term," Jefferies analyst Christopher LaFemina wrote in a note.
Meanwhile, the world's two largest economies have begun a new round of talks this week at an aim to hammer out a deal before a March 1 deadline, after which U.S. tariffs on $200 billion worth of Chinese imports are scheduled to increase to 25 percent from 10 percent.
However, a U.S. Navy mission through the disputed South China Sea cast a shadow over the negotiations in Beijing.
"It is hard to predict if ferrous prices would bounce back as there remain many uncertainties from the fundamental sectors," said the Shanghai trader.
Benchmark Shanghai construction steel prices also retreated on Tuesday following the falling iron ore prices. It lost 1.8 percent to 3,785 yuan a tonne during when market closed at 0700 GMT.
Hot-rolled coil, a flat steel, fell 1.9 percent to 3,674 yuan a tonne.
Steelmaking raw ingredient coking coal on the Dalian Commodity Exchange inched up 0.8 percent to 1,291.5 yuan a tonne, while coke futures dropped 1 percent to 2,100.5 yuan.
(Reporting by Muyu Xu and Dominique Patton; Editing by Gopakumar Warrier and Sherry Jacob-Phillips)