The rupee ended 0.32 percent weaker at 45.29/30 per dollar, its lowest close since November 3, 2004. It hit an 11-month intra-day low of 45.41 on October 19.
Traders said thin trade, in a week with a few local holidays, had also exaggerated price moves with most participants looking to buy rather than sell the strengthening dollar. Banks in India were shut on Tuesday for Diwali, a Hindu festival.
"There is demand for cash dollars and with inflows not quite matching demand, we should continue to see rupee under pressure tomorrow as well," a trading head at an Indian bank said.
"With sentiment on the dollar appearing more and more bullish overseas, importers are clearly wary and covering all their short-term requirements," he said.
The dollar's gains this year have combined with worries about a widening trade deficit and data showing overseas portfolio investors were net sellers of more than $800 million of Indian stocks in October to drag the rupee 2.5 percent lower last month.
Traders are, however, eyeing capital inflows towards a large foreign telecom company's investment in a leading Indian telecom operator, which could possibly hit the market later this month, easing some pressure on the rupee.