The resource-heavy S&P ASX 200 index closed down 1.5% at 5,271.14.
Shares in energy giant Rio Tinto finished 7.8% lower, while Woodside Petroleum lost 5%.
Oil prices fell overnight on renewed fears of a supply glut. According to industry data, output from Middle East producers jumped last month and may continue to rise in the short term.
Additionally, a US government report due out on Wednesday is expected to show that US crude stockpiles are at a record high.
Brent crude, which is used as an international benchmark, was down 1.9% overnight at $44.97 a barrel. Prices edged higher in Asian trade to just above $45.
Shares in BHP Billiton fell more than 9% in Australia following news of a lawsuit in Brazil. Prosecutors in Brazil filed a $43.5bn (Â£30bn) civil lawsuit against iron miner Samarco, and its owners BHP Billiton and Vale.
In China, the Shanghai Composite closed flat at 2,991.27, while in Hong Kong the Hang Seng index fell 151.11 points, or 0.7%, to 20,525.83.
In South Korea, the benchmark Kospi index closed down 0.5% at 1,976.71.
Markets in Japan are shut for three days of national holidays and will re-open on Friday.
Australian stocks fell on Wednesday following an overnight slump in oil prices.