Shares in Kobe Steel fell by the daily limit of 300 points, the equivalent of 22 per cent, after the company admitted issuing product certificates that inaccurately met customer standards for shipments of aluminium and copper.
Kobe Steel said on Sunday the products were delivered to more than 200 companies but it did not disclose customer names.
"The scope of it is in some ways is really quite breathtaking", said Tim McDonald from the BBC.
Analysts say the announcement further tarnishes the reputation of Japan's globe-trotting manufacturers, long celebrated for their high-quality products.
The automaker is grappling with its own compliance failures, recalling all new cars sold in Japan in the last 3 years after discovering final vehicle inspections were not performed by authorized technicians. And Toshiba's Westinghouse Electric Co.
Mitsubishi Heavy Industries said Kobe Steel products were used on its Mitsubishi Regional Jet and rockets, including the H-2A rocket launched on Tuesday morning to put a navigation satellite into orbit. Nissan Motor and Mitsubishi are also top customers of Kobe Steel and said they are checking whether their vehicles are affected.
Industry ministry officials said Kobe Steel materials were used in some defense equipment made by Kawasaki Heavy, MHI, IHI Corp and Subaru and checks were being made for any safety issues.
It is now unclear what impact the scandal will have on Kobe´s business performance.
Railway companies including East Japan Railway Co. and Central Japan Railway Co. said that the problematic products had also been used in some of the Shinkansen bullet trains.
"It's so regrettable that such things happened to companies that represent (the image of) Japan", he said, adding that manufacturers in question should find out the cause of such misconducts and make sure they never happen again.
"These are improper actions that could shake the foundation of fair trade", Yasuji Komiyama, director of the industry ministry's metal industries division, told reporters at a briefing on the revelations.
The falsification was meant to make the metals look as though they met client quality standards.
Some of the biggest vehicle manufacturers including Toyota and Honda are affected by an industrial scandal in Japan over falsified data relating to the strength and durability of aluminium used in the production of their cars.
"Aluminium is a strategic business for Kobe Steel", said Irisawa at Tachibana Securities.
Takata, whose problematic airbags have been blamed for more than a dozen deaths, pleaded guilty in the United States in February for misleading automakers about the safety of the airbags.