The main All Share Price Index fell 0.39 percent (23.54 points) to 6,037.41, while the more liquid Milanka index fell 0.37 percent (19.72 points) to close at 5,279.52, according to stock exchange figures.
Turnover fell to 611 million rupees.
Kandy Hotels Company, among the more actively traded stocks, was the day's highest gainer, closing at 281.80, up 81.80 rupees or almost 41 percent with 77,700 shares changing hands.
"Kandy Hotels emerged as the top gainer of the day attracting retail investor interest subsequent to the announcement of the 01 into 35 subdivision of shares," brokers lanka Securities said.
Retail investor interest was seen in Orient Garments, HVA Foods and Colombo Land & Development.
Transactions in John Keells Holdings accounted the the day's biggest turnover. The share closed flat at 175 rupees with 326,000 shares traded.
Dialog Axiata also closed flat at 7.80 rupees with 7.25 million shares traded.
There were no crossings or off-market private deals.
Investors have been unnerved by recent government action to take over some business with leased state assets that had been deemed under-performing and underutilised.
The market had also been expected to come down after hitting record highs for two successive years following the end of the 30-year ethnic war in 2009.
Some lands of listed plantations companies have also been taken over to be re-distributed among small farmers.
The government also devalued the rupee by three percent in an unexpected announcement in the budget Monday.
Environmental Resources Investments W0003 warrants were the day's biggest lower, ending at 15.70 rupees, down 2.40, and W0002 closing at 15.30, down 1.70 rupees.
Orient Garments was the most actively traded stock, closing at 37.10 rupees, up 1.60 with just over a million shares done.
HVA Foods was again among the actively traded stocks, ending 1.50 rupees down at 37 rupees, with 431,600 shares done.