The S&P/TSX composite index tumbled 342.78 points to 13,852.95, led by a drop of 5.5 per cent in the energy group after the OPEC cartel cut its forecast for 2015 world demand for its oil.
It also said supplies from non-OPEC countries will rise more than forecast next year.
The TSX is down 12 per cent from 2014 highs racked up in mid-summer and now is a bare 230 points or 1.7 per cent above where it started the year.
A drop of 10 per cent or more from recent highs is considered a correction.
Damage was widespread across Toronto market sectors as investors try to gauge how a drop in oil prices of around 40 per cent since mid-summer will impact on the Canadian economy.
"I think it’s basically a sell-Canada mentality," said Ian Nakamoto, director of research at 3MACS.
"Whatever the rate of growth that was forecast, say two months ago, is going to be revised down."
The Canadian dollar shed 0.3 of a cent to 87.11 cents US.
Slumping energy stocks also sent New York indexes deep into the red with the Dow Jones industrials down 268.05 points to 17,533.15. Meanwhile, the Nasdaq dropped 82.44 points to 4,684.03 and the S&P 500 shed 33.68 points to 2,026.14.
OPEC forecast that demand for its oil would drop to 28.9 million barrels a day next year, compared with 29.4 million barrels a day in 2014, the weakest amount in 12 years. The cut comes amid lower demand and rising supplies, in the United States. It also followed the decision by OPEC last month to leave production levels unchanged, leaving the markets to sort out a huge imbalance between supply and demand.
On Wednesday, the January crude contract on the New York Mercantile Exchange dropped $2.88 to US$60.94 a barrel. The TSX energy sector, which makes up 23 per cent of the TSX, has plunged more than 25 per cent so far this year.
Iran's president, Hassan Rouhani, says the sharp fall in oil prices is the result of "treachery" — an apparent reference to regional rival Saudi Arabia, which opposed OPEC production cuts to lift prices.
The base metals sector lost 3.4 per cent as March copper gave back most of Tuesday's four-cent gain, down three cents to US$2.90 a pound.
Other major losers included financials, down 1.75 per cent, and industrials, which fell 2.75 per cent.
The gold sector faded 2.4 per cent as February bullion moved down $2.60 to US$1,229.40 an ounce after traders looking for a safe haven had pushed gold up US$37 an ounce on Tuesday.
On the corporate front, Laurentian Bank of Canada (TSX:LB) says its net income in the fourth quarter was $33.8 million or $1.09 per diluted share, up from $25.9 million or 82 cents per share in the same 2013 period. Adjusted net income increased to $42.6 million or $1.39 per share from $38.5 million or $1.26 per a share last year.
The bank says it will be increasing its dividend by nearly four per cent to 54 cents per share with the next payment in February. Its shares fell $2.67 to $47.60.