The S&P/ASX 200 index ended 0.41pc lower at to 5,550.4.
China, Australia's largest trading partner, on Wednesday announced changes to the inspection process for its iron ore imports, a move traders and analysts speculate could spill onto another important Australian export - coal.
Tensions between the two countries have heightened recently over Australia's support for an international probe into the origin of the novel coronavirus.
"There's some real nervousness that new laws could be used to extend the restrictions China has imposed on barley and beef imports onto essential exports like iron ore," said Kyle Rodda, market analyst at IG Markets.
Among sectors, the mining index fell for a second consecutive session.
Global miners Rio Tinto and BHP Group lost 1pc and 0.6pc, respectively, while iron ore giant Fortescue Metals Group dropped over 2pc.
Financials stocks snapped two sessions of gains, with the "big four" banks shedding between 0.5pc and 1.7pc.
"The banking sector still faces a high level of uncertainty about the extent of defaults and impediments", Rodda said.
Australian banks' will see a fall in their capital buffers over the year due to likely loan losses as thousands of jobs are lost, the head of the prudential regulator said.
Gold stocks were also lower as bullion prices fell, with Newcrest Mining falling 1pc.
Meanwhile, the energy index hit an over 2-month peak as oil prices climbed on a drawdown of US crude inventories and output cuts by major producers.
The number of issues on the ASX that advanced were 858 while 768 declined.
New Zealand's benchmark S&P/NZX 50 index ended 0.5pc lower, dragged lower by financials.
Real estate co Goodman Property Trust was 1.5pc lower.