The Shanghai Composite fell a further 1.7% to 3,663.00, having sunk 8.5% on Monday - its biggest drop in eight years.
China has tried to calm investors by reassuring it will implement prudent monetary policy to stabilise markets.
The country's central bank said it would inject 50bn yuan (£5.2bn; $8.05bn) into the money markets.
The People's Bank of China also insisted that the country's main economic indicators were steadily improving.
Monday's dramatic drop had been triggered by weak economic data on profits at Chinese industrial firms, and a disappointing survey of the manufacturing sector on Friday.
The regulating authority, the China Securities Finance Corporation (CSFC), said there would be a crackdown on short selling.
It warned that, "any malicious trading will be investigated and severely punished".
In the wake of stocks tumbling more than 30% in June, the authority's rescue plan already included a crackdown on short-selling - betting on the decline of shares' values.
But analysts were hesitant to take much confidence from those measures.
Evan Lucas, market strategist with trading firm IG, said in a note that "clearly the Chinese markets are unable to support themselves".
"The mountain of leverage and the risks of margin calls are hitting market stability."
In Hong Kong, the Hang Seng index went against the trend set on the mainland, rising 0.6% to 24,503.94.
Elsewhere in Asia, stocks traded mixed, managing to withstand the downward pull from China.
Asia's largest stock market, Japan's Nikkei 225 finished unchanged at 20,328.89 points, recovering from losses seen earlier in the day.
Shares in camera maker Canon rose 0.5%. The increase came as a surprise after the firm cut its earnings outlook and reported a 16% fall in quarterly profit on Monday.
Sales have been hit by consumers increasingly using their smartphones rather than compact cameras.
In South Korea, the benchmark Kospi also ended flat at 2,039.08.
Relief for stocks came from Prime Minister Hwang Kyo-Ahn declaring the end of the deadly outbreak of Middle East Respiratory Syndrome (Mers).
Thirty six people died out of the 186 infected by the virus, following the first diagnosis on 20 May.
The outbreak had been a major strain on the country's economy, affecting domestic consumption and tourism. The quarantine of the last suspected patient was lifted on Monday.
Australia's ASX 200 share index closed down 0.2% at 5,580.50.
China is Australia's main market and the dramatic volatility in Chinese stocks as well as the slowing growth indicators are expected to affect investors' confidence.
