The benchmark Nikkei index of the Tokyo Stock Exchange fell 126.39 points to 10,452.71. The Topix index of all first section shares lost 1.34 percent or 12.66 points to 934.22.

"There is increasing uncertainty in conditions in the Middle East and a resolution is not in sight," Yutaka Miura, senior technical analyst at Mizuho Securities told Dow Jones Newswires.

Shares of exporters were beaten down on worries that a stronger yen may cut into their overseas profits, brokers said.

"Investors are watching when the steady rise of the yen against the dollar will halt," Okasan Securities Strategist Hideyuki Ishiguro said.

As violence continued in Libya, risk-averse investors snapped up the yen. The dollar fetched 82.01 yen in Tokyo trade, down from 82.46 in New York late Wednesday. The euro eased to 113.02 yen, compared with 113.37 yen.

Moamer Kadhafi's regime has lost vast swathes of Libya's east to an insurrection and the West is braced for a mass exodus, disrupting production of its high-grade crude.

This has pushed oil prices above $100 per barrel in a return to highs not seen since 2008 and prompting fears that the global economic recovery could be stalled.

On Wall Street, airline shares were hammered for a second day over the prospect of higher fuel costs, while oil companies gained for the same reason.

The Dow Jones Industrial Average lost 0.88 percent.

In Tokyo, All Nippon Airways was 1.63 percent lower at 300 yen and Honda Motor fell 1.41 percent to 3,475 yen.

Electronic measuring device maker Anritsu dropped 5.55 percent to 731 yen after NEC announced it will lower its stake in the company. NEC dropped 1.26 percent to 234.