The Briton's car careered straight across the gravel runoff at the Jerez circuit's turn six, the notorious Dry Sack corner where Michael Schumacher and Jacques Villeneuve collided in the 1997 title-deciding European Grand Prix.
The car's wheel tracks indicated Hamilton, who stepped out unhurt after staying in the car for a few minutes, had been a mere passenger with no response from the steering as it went off the track.
"Lewis suffered a loss of rear brake pressure, the front brakes enabled him to slow the car but he couldn't avoid the barrier," said Mercedes.
"We have traced the problem to the hydraulic brake line connecting to the right-rear caliper," the team added on their Twitter feed.
The front left suspension and aerodynamic parts were damaged in the impact. After investigations Mercedes decided to end their day of testing early - as they were also forced to do on Tuesday - telling Autosport that repairs required to areas including the hydraulics would preclude any further participation.
Hamilton had been second fastest, with a best lap of one minute 19.519 seconds, when he brought out the red flags one hour and 48 minutes into the session.
Hamilton, 28, who had completed 15 laps, is opening a new chapter in his Formula One career with Mercedes after six years with McLaren.
Mercedes have just one win, last year's Chinese Grand Prix, to their credit since buying the championship-winning Brawn team in 2009 and Hamilton has replaced retired seven times world champion Schumacher.
The British-based team had a difficult start to the first pre-season test of 2013 on Tuesday when Germany's Nico Rosberg completed only 14 laps.
Problems with the car's wiring loom left Rosberg stranded on the track, with flames flaring briefly around the rear of the vehicle, before Mercedes called an early halt to proceedings.
The test runs until Friday.
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