The main gauge of Tehran Stock Exchange, TEDPIX, fell more than 2%, dropping 6,439 to 314,469.
Over 200 shares were hit by the selloff, causing the prices of 95% of symbols to retreat from the maximum.
The selloff started in bank stocks from the early hours of trading day that was extended to a large number of other stocks during the trading session, Financial Tribune reported.
Analysts say the market has long been susceptible for a correction phase after consecutive rallies in recent weeks.
The bear market on Tuesday was the second biggest downturn since the beginning of the current calendar month on September 23.
The market had seen a massive selloff on Sunday, falling another 2%, before partially gaining posture on Monday.
Stocks of banks, steel and communication companies contributed the most to the benchmark fall on Tuesday.
Bank Mellat alone pushed down the TEDPIX more than 400 points. The Lender had managed to attract 1.3 trillion rials of investors’ money on its reopening day on Wednesday.
Reopening of the symbol on the stock market bulletin coincided with the time when the bank’s CEO announced that the lender had received compensation it had sought from the UK government.
The news was enough for a large number of investors to place orders from the moment the symbol reopened.
The foray to buy Bank Mellat’s shares was apparently triggered by investors’ over-optimism regarding the real sum the bank had received.
However, investors lost heart on Sunday after the lender clarified that it had only received £80 million (out of £1.3 billion) over a settlement deal with the Brits.
Market Performance
The TSE's main index TEDPIX lost 6,439.79 points or 2.01% on Tuesday to end trading at 314,469.9.
About 4.86 billion shares valued at 20.98 trillion rials ($184.06 million) changed hands at TSE for the day.
Trading at TSE and over-the-counter Iran Fara Bourse starts on Saturday and ends Wednesday.
Mahram Industry Group was the biggest winner as its shares went up 5% to 35,771 rials per share.
Qayen Cement Company incurred the biggest loss among all TSE-listed companies and went down 8.43% to 26,711 rials per share.
Bank Mellat contributed the most to the benchmark's fall, followed by MAPNA Group, Mobarakeh Steel Company and Telecommunication Company of Iran.
Kharg Petrochemical Complex gave the biggest boost to the benchmark index, followed by Tabriz Oil Refining Company, and Pars Petrochemical Company.
IFX Down 2.11%
Iran Fara Bourse main index IFX lost 88.75 points or 2.11% to close Tuesday trade at 4,122.85.
About 2.24 billion securities valued at 12.97 trillion rials ($113.8 million) were traded at the over-the-counter exchange for the day.
Pars Paper Industry Group had the highest number of traded shares and trade value as 194.12 million of its shares worth 1.5 trillion rials ($13.3 million) were traded.
Goharzamin Iron Ore Company, Esfahan Steel Company and Zagros Petrochemical Company had the most negative impact on IFX.
Pars Paper Industry Group gave the biggest boost to IFX, followed by MahTaab Kahnouj Power Generation Company, and Asia Zarin Madan Company.