Why do current transformers saturate with high short circuit currents?
Figure 1. A current transformer and ammeter. Source: Wikipedia.

As can be seen from the illustration the current transformer has no idea what the voltage of the circuit being measured is. It simply couples the current from the primary (the large conductor) to the secondary and the current is reduced by the turns ratio.


  Voltage of the faulty line drops sharply but CT still saturates.


Yes. A given core can only handle so much flux. As you reach that limit the core will saturate.


  As far as I know it is the voltage that saturates the core not overcurrent. Am i missing something?


Yes. The operating voltage of a current transformer is irrelevant. It only transforms current.