Asian investors made a stampede for the exit on Monday, with China's Shanghai Composite index posting its biggest one-day percentage loss since 2007, as fears surrounding the health of China's economy multiplied. "It is a key moment for China, with the equity market in free fall, the banking system increasingly starved of liquidity, rising capital outflows, and a rapidly slowing economy," IG's market analyst Angus Nicholson wrote in a note. "The [7 percent growth] target is now looking overly ambitious and the most sensible way forward would seemingly involve further currency devaluation, further reserve requirement ratio (RRR) cuts and [elevated] fiscal stimulus," the Melbourne-based analyst added. Read MoreWeek ahead: Asia looks to Big Three economies

China-related jitters also took a toll on Wall Street last Friday, with the blue-chip and tech-heavy Nasdaq slipping into correction territory. The Dow and the S&P 500 ended 3.12 percent and 3.19 percent down respectively, while the lost 3.5 percent. On Friday, the major averages had their biggest trade volume day of the year and posted their worst week in four years. "We are seeing market capitulation," Daryl Liew, head of portfolio management at REYL, told CNBC. "The U.S. market came to the party last week, on the back of reasons such as the impact of China and how that's feeding into a [possible] delayed rate hike by the Fed, as well as concerns over global growth. There's also the issue of valuations in the U.S. markets."

Mainland markets in free fall The key Shanghai bourse fell 8.5 percent through a key support level of 3,500 to finish at a five-month low of 3,210.8. The hefty plunge came even as authorities in the stock market for the first time, which could potentially channel hundreds of billions of yuan into the country's struggling equity market. Among China's other indexes, the benchmark CSI300 index - which consists of 300 A-share stocks listed on the Shanghai and Shenzhen stock exchanges - skidded 8.8 percent, while the smaller Shenzhen Composite retreated 7.7 percent.

According to Reuters, the slump on Monday means that the Shanghai bourse has given up all its gains for the year, while the CSI300 is down over 6 percent for the year. "Although we remain positive in the long term, we do acknowledge [that there are] signs of a perfect storm due to weakness in the purchasing managers' index (PMI), weak consumption and retail sales, and the recent renminbi devaluation," Stephen Ma, head of Greater China equities at BMO Global Asset Management, told CNBC Asia's "Squawk Box." Among the top losers, brokerages such as Citic Securities and Haitong Securities fell by the daily maximum allowable of 10 percent each. Heavyweight developer Poly Real Estate also shaved off 10 percent. In Hong Kong, the Hang Seng index followed its mainland peers lower, down 5.2 percent, with heavyweights such as HSBC and China Mobile plunging 4.3 and 7.9 percent, respectively. Read MoreAs Shanghai stocks crumble, what will China do next? Taiex slumps 4.8% Taiwan's weighted index fell to a three-year low, even as the country's Financial Supervisory Commission (FSC) announced that short selling of stocks below the closing prices of the previous business day will not be permitted.

At one point in the morning trading session, the main TAIEX index slumped 7 percent at an intra-day low of 7,203, with investors spooked by the accelerated downturn in China's equity markets. On the domestic data front, Taiwan's jobless rate eased slightly to 3.74 percent in July, compared with June's 3.76 percent.

Investors observe the stock market at an exchange hall in Hangzhou, Zhejiang Province of China. ChinaFotoPress | Getty Images