The S&P/ASX 200 index was lower for a second straight day, falling to its lowest since Dec. 2016, and closing at 5,552.5, down 2.3 points.
Investor apprehensions were stoked by U.S. officials saying they would move forward with their strategy to raise tariffs on China if the two nations do not come to an agreement during the 90-day negotiating period.
China's Huawei Technologies Co Ltd's chief financial officer Meng Wanzhou's arrest in Canada on Washington's directive last week added to fears the United States and China could fail to resolve their trade differences.
Worries over global economic growth also heightened after tepid U.S. jobs data on Friday, and China's far weaker-than-expected November exports and import numbers on the weekend, which revealed the extent of its worsening trade relations with the world's largest economy.
China is Australia's top trading partner and any changes in the economic fortunes there are likely to affect markets Down Under.
The 'Big Four' Australian lenders were in the red throughout the session with Westpac Banking Corp falling as much as 3.4 percent, while National Australian Bank fell 2.5 percent to their lowest since November and December, 2012, respectively.
Commonwealth Bank of Australia closed 3 percent lower at a near three-week low, while Australia and New Zealand Bank fell 4.2 percent, the lowest since July 2016.
The healthcare sector fell 3.7 percent weighed by Cochlear, which fell 5 percent to a 2-1/2-week low, and CSL Ltd which ended the session 3.95 percent lower.
Australia's energy index fell 0.8 percent, with WorleyParsons Ltd and Beach Energy Ltd being the top percentage losers and biggest drags.
New Zealand's benchmark S&P/NZX 50 index fell 1.2 percent to finish the session at 8,660.02, after the country's official data agency showed that third-quarter manufacturing sales volumes had slipped 1.6 percent.
Diary giant a2 Milk Co was the top percentage loser, falling as much as about 5 percent to its lowest in slightly more than a week.
Volumes for dairy and meat products, the country's biggest export earners, fell 6.7 percent in the third quarter, data from Statistics New Zealand showed on Monday.