The Dow Jones Industrial Average tumbled 392.41 points, or 2.32 percent, to 16,514.10. The S&P 500 shed 47.17 points, or 2.37 percent, to 1,943.09. The Nasdaq Composite Index plummeted 146.34 points, or 3.03 percent, to 4,689.43.
Trading on the Shanghai and Shenzhen bourses stopped early on Thursday after shares tumbled 7 percent within the first 30 minutes of trading, triggering the "circuit breaker" mechanism.
However, the China Securities Regulatory Commission announced Thursday night that it will from Friday suspend the stock market "circuit breaker" mechanism that has been implemented since the beginning of this year.
Tokyo shares ended the trading Thursday sharply lower with its benchmark Nikkei stocks index declining below the 18,000 line, as sentiment here was hit by weak performance in China's equity market and the Japanese yen's advance against the U.S. dollars.
European equities also suffered big losses amid oil weakness Thursday, with Germany's benchmark DAX index at Frankfurt Stock Exchange tumbling 2.29 percent to close down below 10,000 points.
Dampening investor sentiment, oil prices kept falling Thursday, with the U.S. oil hitting the weakest level since late December 2003, as excess supply continued to weigh on the market.
The West Texas Intermediate for February delivery moved down 70 cents to settle at 33.27 dollars a barrel on the New York Mercantile Exchange, while Brent crude for February delivery decreased 48 cents to close at 33.75 dollars a barrel on the London ICE Futures Exchange.
On the U.S. economic front, in the week ending Jan. 2, the advance figure for seasonally adjusted initial claims was 277,000, a decrease of 10,000 from the previous week's unrevised level, the Labor Department announced Thursday.
Traders kept a close eye on the key December employment data due out Friday, the first jobs report since the U.S. Federal Reserve's mid-December decision to raise its interest rates.
The CBOE Volatility Index, often referred to as Wall Street's fear gauge, soared 21.37 percent to end at 24.99 on Thursday.
In other markets, the U.S. dollar traded mixed against most major currencies before the non-farm payrolls report due Friday.
The dollar index, which measures the greenback against six major peers, was down 0.98 percent at 98.207 in late trading.
Gold futures on the COMEX division of the New York Mercantile Exchange rose as geopolitical instability drove investors to the precious metal for the fourth session in a row.
The most active gold contract for February delivery rose 15.9 dollars, or 1.46 percent, to settle at 1,107.80 dollars per ounce.