One of the country's largest newspapers, O Globo, reported on Wednesday that two senior executives from JBS, a giant meat-packing firm, have submitted a tape to the Supreme Court of a secret recording of Mr Temer approving a payment to Eduardo Cunha - the mastermind behind last year's impeachment of former president Dilma Rousseff - in return for his silence as a witness in a corruption case.
Protests were planned in several cities and opposition politicians took to Twitter and local news channels to call for Temer to be impeached, arguing his government no longer had legitimacy.
Mr Temer is trying to get pension reforms through Congress that would mean men would have a minimum retirement age of 65, and women 62, and most people would contribute more.
The Bovespa index crashed more than 10% after opening, triggering an automatic suspension of trading for 30 minutes.
Shares of state-controlled companies, such as Banco do Brasil SA and Centrais Elétricas Brasileiras SA, or Eletrobras, lost about a fifth of their value, and the nation's currency fell 7.5 percent, wiping out its gains for the year.
(AP Photo/Silvia Izquierdo). Demonstrators confront police during a protest against Brazil's President Michel Temer in Rio de Janeiro, Brazil, Thursday, May 18, 2017.
A statement from Temer's office confirmed that the president did meet with Batista in March but denied soliciting a bribe.
The recordings also implicate senator and former presidential candidate Aecio Neves, who reportedly asked Batista for almost $600,000 to pay for his defense in the Car Wash Corruption Probe.
On Thursday, the Supreme Federal Tribunal, the country's highest court, suspended Neves from office indefinitely.
A newspaper reported that Temer was caught on tape discussing hush money for jailed former speaker of the house Eduardo Cunha.
Mr Temer took over office a year ago after the impeachment of his predecessor, Dilma Rousseff. According to the Globo report, Batista secretly recorded the conversations with Temer and Neves and gave them to justice officials as part of plea bargain negotiations.
On the tape, which was finally made public Thursday, Batista told Temer that he was paying money every month to Cunha "to keep things under control".
Less than a year later, Brazil is gearing up for another presidential corruption scandal, this one focused on Michel Temer, Dilma's vice president before succeeding her.
More worryingly for Temer, the PSDB appeared to be losing faith.
Temer's press representatives could not immediately be reached for comment.
Rousseff accused Temer of carrying out a "coup" to impede the Car Wash probe, in which more than 90 leading business and political figures have been convicted so far.
Some Temer allies tried to shore up confidence in the president, while others said his party was in disarray. Congress cancelled its sessions, including suspending work on legislation that Temer's administration hopes will pull Latin America's largest economy out of its worst recession in decades.
Michel Temer is the ultimate political insider who quietly and ruthlessly worked his way to the summit of Brazil's political pyramid - before finding himself teetering in spectacular fashion. According to recent data released by pollster Datafolha, Temer's popularity rating is less than 9%.
"[There] are some eerie similarities between political developments and market reactions in Brazil and in the United States, and both are playing out simultaneously", said Thomas Trebat, director of the Columbia Global Centers, Rio de Janeiro.
But the new allegations refer to an incident that took place after Temer took office, which would open the door to an investigation against him.