Sales of rough diamonds at De Beers, which has a 70 per cent share of the world market, collapsed to $3.345bn (pounds 2bn) from $4.640bn as demand slumped in the Far East.
The sales figures were the worst since 1987, prompting fears that De Beers would be forced to slash its dividend for the full year by up to 30 per cent next March.
However, the company said that sales were holding up well in the United States and Europe, but this was too little to offset the lower sales in Japan, where demand for diamonds had crashed 20 per cent from 1997, and Hong Kong, where imports of polished stones fell by 40 per cent.
The Central Selling Organisation, the marketing arm of De Beers, has been stockpiling uncut gems in an effort to restrict supply and boost the price for polished stones.
But analysts said prices in the key market - the US - were failing to respond. One analyst said De Beers could end up with a stockpile of rough diamonds worth around $5bn.
Mark Cockle, editor of the independent trade magazine Diamond International, said: "These are the worst results for a decade: De Beers is hurting and the industry is hurting. The pressure will now be on the De Beers directors to make some hard choices."