The Nifty of National Stock Exchange (NSE) too dropped by 96.80 points to 10,224.95.
Disappointing macroeconomic data and muted earnings as well as caution ahead of CPI inflation data to be released later in the day hit the market sentiment, brokers said.
Not sure which way to move, the Sensex changed its course many a time during the day, before it settled at 32,941.87 - a three-week low, down 91.69 points, or 0.28 per cent.
The BSE market breadth was bearish - 1,629 declines and 1,082 advances.
Equity markets on Tuesday spiralled down further as Sensex lost nearly a 100 points to close below the 33,000-mark.
Indian shares extended fall on Tuesday, tracking lackluster Asian equities and amidst reduced chances of a rate cut by the central bank after retail inflation quickened to a seven-month high. India's wholesale price inflation stood at 3.59% for October, a rise from 2.6% in September.
Weakness rubbed off on broader markets, with mid-cap and small-cap indices falling by up to 0.22 per cent.
On the currency front, the rupee closed flat at 65.42 against the United States dollar from its previous close. "Global cues were not helping either amid uncertainty over U.S. tax reform, slow down in Chinese factory output and growing political issues in UK", Vinod Nair, Head of Research, Geojit Financial Services said.
Sectorwise, the S&P BSE capital goods index plunged by 260.55 points, followed by oil and gas index by 139.03 points and metal index by 90.19 points.
Shares of Larsen and Toubro fell 2.46% to become the biggest loser on the Sensex.