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The benchmark Nikkei 225 index was down 147.91 points at 11,112.44 by the break, while the Topix index of all first-section shares was down 0.90 percent, or 8.63 points, at 947.12.
Spanish Prime Minister Mariano Rajoy came under pressure to step down as he was forced to dismiss claims by El Pais newspaper that he and other ruling party officials channelled donations into secret payments.
Madrid's cost of borrowing surging, reviving worries about its ability to access the debt market to keep functioning.
And in Italy former prime minister Silvio Berlusconi said he would refund the money Italians have had to pay for an unpopular property tax if his coalition, headed by his protege Angelino Alfano, wins a February 24-25 election.
Recent polls have shown his party making solid gains.
Berlusconi, who would take the role of finance minister in a new government, abolished the real estate tax in 2008 but it was reinstated last year as part of Prime Minister Mario Monti's austerity budget in Italy.
The news from Spain and Italy raised concerns about stability.
"The market consensus has been that political stability will lead to the implementation of necessary policy steps," Yoshihiro Okumura, general manager of research at Chibagin Asset Management, told Dow Jones Newswires.
"These developments are casting a shadow on that," he added.
US stocks fell sharply, with government data showing industrial orders rose less than expected in December also weakening sentiment.
The Dow Jones Industrial Average, which ended close to record highs on Friday, dropped 0.93 percent to finish at 13,880.08.
Analysts said the index had been due for a breather after it closed Friday above the psychologically important 14,000 level for the first time in more than five years.
In Tokyo stock trading, conglomerate Hitachi fell 6.87 percent to 528 yen after slashing its full-year profit forecasts on Monday, while Japan Airlines jumped 4.58 percent to 3,990 yen on news it had boosted its full-year outlook.
Fukushima operator TEPCO was down 0.95 percent to 207 yen as it said Monday that its full-year loss would be bigger than previously expected.
Fast Retailing was off 2.83 percent to 24,310 yen on weaker domestic same-store sales in January at its Uniqlo cheap chic clothing chain.
On currency markets, the dollar firmed against the yen, buying 92.35 yen compared with 92.11 yen in New York on Monday afternoon.
The euro bought 124.63 yen and $1.3494 against 124.28 yen and $1.3503. However, the single currency is well down from the $1.3626 and 126.26 yen seen on Monday in Asia.