The 225-issue Nikkei Stock Average finished down 462.16 points, or 1.63 percent, from Monday at 27,821.76, its lowest closing level since Oct. 7.
The broader Topix index of all First Section issues on the Tokyo Stock Exchange ended 20.13 points, or 1.03 percent, lower at 1,928.35.
Declining issues were led by iron and steel, pharmaceutical and nonferrous metal issues.
Tokyo stocks rebounded largely in early trading, following Wall Street's overnight gains and because investors bought hard-hit stocks after the Nikkei Index ended the day at its lowest level since mid-October.
But they turned downward in the afternoon and fell into negative territory after the chief executive of U.S. pharmaceutical giant Moderna Inc. told media that existing COVID-19 vaccines may struggle against the Omicron strain.
"The report likely suggests that the world will be under the risk of the Omicron variant until a vaccine effective against the variant is developed," said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management Co.
Ichikawa said that the Financial Times report raised worries over the potential impact of the variant on the global economy recovery from the COVID-19 pandemic, especially as many aspects of the newly discovered strain are still unknown.
The Nikkei also tracked the decline in losses in U.S. stock futures and the Hang Seng index in China's Hong Kong, brokers said.
Some land transportation issues kept rising after drawing buying on dips following sharp falls. East Japan Railway grew 1.9 percent, Odakyu Electric Railway Co. increased 2.7 percent, and Tobu Railway climbed 0.7 percent.
Leisure-related issues were struck as concerns rose over the Omicron variant. Travel agency H.I.S. declined 1.5 percent, while Tokyo Disney Resort operator Oriental Land dropped 0.3 percent.
On the First Section, decliners outnumbered advancers 1,533 to 572, while 79 finished unchanged.
Trading volume on the main section increased to 2,545.76 million shares from Monday's 1,530.62 million shares.
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