The blue-chip CSI300 index <.CSI300> fell 2.4 percent, to 3,409.18 points, while the Shanghai Composite Index <.SSEC> lost 2.5 percent to 3,152.97 points, notching up their biggest single-day percentage falls since June.

China's insurance regulator, which recently warned it would curb "barbaric" acquisitions by insurers, said late on Friday it had suspended Evergrande Life, the insurance arm of China Evergrande Group (>> China Evergrande Group), from conducting stock market investment.

That hit the market hard as insurers' relentless buying in modestly-priced industry-leading blue-chips was one of the main drivers behind the recent strong advance in the market.

The sell-off was exacerbated by signs of tighter liquidity in the banking system, signalled by a slump in bond future contracts, whose prices move inversely with yields.

Growth stocks led Shenzhen-shares lower, with the start-up stocks index <.CHINEXTC> tumbling 5.8 percent to its lowest in 6 months, as the recent steep fall in LeEco's (>> LESHI INTERNET INFO. & TECH. CORP.,BJ) share price raised concerns over the valuation and growth prospects of those emerging shares.

All main sectors lost ground, led by real estate <.CSI300REI> and industry <.CSI300IN> shares.

China Vanke (>> China Vanke Co., Ltd.), Gree Electric Appliances (>> Gree Electric Appliances Inc of Zhuhai) and China State Construction Engineering (>> China State Const. Eng. Corp Ltd), which had soared previously on insurances companies' enthusiastic share purchases, dropped 6.3 percent, 6.1 percent and 5.0 percent, respectively.

(Reporting by Luoyan Liu and John Ruwitch; Editing by Shri Navaratnam)