The partially convertible rupee tumbled by more than 85 paise and hit the record low of 57.94 against a dollar at around noon trading in Mumbai. The Indian currency had weakened by 22 paise to 57.06 against the dollar Friday.
Worries over widening current account deficit and firming of the dollar against major global currencies, including the Euro and the Japanese Yen, has put pressure on the Indian rupee.
Chief economic advisor in the finance ministry Raghuram Rajan said the government was taking medium-term measures to control current account deficit.
Rajan expressed the hope that the weakness in the Indian currency would be a temporary phenomenon.
"This could be temporary phenomenon. But again, let me reiterate, government is not supportive of weakening of rupee and we would like more stability," he said.
India's current account deficit hit a record high of 6.7 percent of gross domestic product (GDP) in the October-December quarter of 2012-13. A weak rupee will make it difficult for the government to finance such high deficit.
Talking to reporters in the national capital, Economic Affairs Secretary Arvind Mayaram said the panic in the market was "unwarranted".
"I think this will settle down in a while. We should not worry but we are watching the situation closely," Mayaram said.