At the same time, the bond yield curve also rose dramatically to 7.93 per cent.
Strong month-end demand for the US currency mainly from oil importers along with currency futures expiry related purchases predominantly weighed heavily on the forex market and haunted investor sentiment.
Growing fears about rising inflation in the midst of high global crude oil prices and consistent outflow of foreign funds from the domestic equity market also weighed down on the domestic currency.
Crude prices firmed up further on growing evidence of disruptions to supply from Iran and Venezuela and after a fall in US crude inventories.
Benchmark Brent crude oil was at $77.65 a barrel in early Asian trade.
Foreign portfolio investors (FPIs) sold shares worth Rs 14.1587 billion on net basis yesterday, according to exchanges data.
The forex market was nervous after reports highlighted risks of India breaching the 3.3 per cent fiscal deficit target for 2018/19. The rupee has fallen over 10 per cent so far this year against the US dollar, a dealer commented.
High Indian bond yields due to worsening inflation outlook also added some amount of pressure.
Maintaining its bearish stance, the domestic currency opened weak at 70.64 against Wednesday's close of 70.59 at the inter-bank foreign exchange (forex) market.
Reeling under heavy dollar pressure, it extended the drop to a fresh record low of 70.90 in mid-morning deals before recouping some losses to end at 70.74, showing a fall of 15 paise, or 0.21 per cent.
The Financial Benchmarks India private limited (FBIL), meanwhile, fixed the reference rate for the dollar at 70.7329 and for the euro at 82.7184.
Meanwhile, BSE Sensex slipped 33 points, or 0.08 per cent, to close at 38,690. The NSE Nifty declined 15 points, or 0.13 per cent, to 11,677 at close.
Globally, the US dollar traded higher against its key rivals after data showed higher-than-expected US economic growth in April-June cemented expectations for a rate hike next month.
Against a basket of other currencies, the dollar index is up at 94.56.
In the cross-currency trade, the rupee also took a severe knock against the British pound to finish at 92.07 per pound from 90.98 and also dropped against the euro to settle at 82.69 as compared to 82.34 on Wednesday.
The local unit, however, closed unchanged against the Japanese yen at 63.46 per 100 yens.
In the forward market on Thursday, the premium for dollar fell sharply due to heavy receiving from exporters.
The benchmark six-month forward premium payable in December declined to 98-100 paise from 102-104 paise and the far-forward June 2019 contract slumped to 246-248 paise from 252-254 paise earlier.