The S&P/TSX composite index lost 145.93 points to finish at 14,246.77 as the February crude oil contract in New York dropped $2.11 to US$47.93 a barrel, the lowest level since April 2009.
The TSX energy sector fell 2.1 per cent.
"Fifty (dollars) is a fairly important level from the standpoint that you're really digging past many, many producers' marginal costs. So I think, psychologically, it's a big number," said Chris King, portfolio manager at Morgan, Meighen and Associates.
"There is absolutely no support on the buying side."
Prices have collapsed since June, falling more than 55 per cent amid a glut of supply. Demand has also softened amid slowing growth in China and Europe.
The Canadian dollar was sharply lower, depressed by falling oil prices and an unwillingness by traders to take on risky investments, including commodities, resource-based currencies and stocks. Investors opted for safer trades such as gold and the U.S. dollar. The loonie fell 0.56 of a cent to a 5 1/2 year low of 84.55 cents US.
New York markets also racked up declines amid disappointing data covering factory orders and the American non-manufacturing sector.
The Dow Jones industrials dropped 130.01 points to 17,371.64, the Nasdaq was down 59.83 points to 4,592.74 and the S&P 500 index gave back 17.97 points to 2,002.61.
The losses came on the heels of a triple-digit drop on North American markets Monday, as the TSX plunged 361 points and the Dow tumbled 331 points.
The performance on the TSX would have been even worse Tuesday had it not been for a six per cent jump in the gold sector as investors pushed bullion prices higher for a third day.
The February gold contract gained $15.40 to US$1,219.40 an ounce.
The plunge in oil prices has forced oil producers and oilfield service companies to cut their capital expenditure plans for this year.
On Tuesday, Crescent Point Energy (TSX:CPG) set its capital budget for 2015 at $1.45 billion, down 28 per cent from its 2014 plan. However, the company maintained its monthly dividend and said its 2015 daily production should average the equivalent of 152,500 barrels per day, up nine per cent. Its shares gained 27 cents to $25.13.
Other sectors have also been under pressure as investors consider the wider effects of lower oil prices, with the financial group down 1.6 per cent and the industrial sector off 1.3 per cent.
"When foreigners invest in Canada, and they’re often looking for the commodity side, the easiest place for them to play it on a liquidity basis is to the financials — so you will have foreigners exit Canada and therefore sell financials," observed King.
"When you drill down to industrial names, there’s a lot of energy relatedness to them. Russell Metals (TSX:RUS), for instance, a big part of their business is energy tubular goods. Other industrials are things like railways, they've been riding high largely on moving oil around."
The base metals group slipped 0.2 per cent while the March copper contract was unchanged at US$2.77 a pound.