More than £27 billion has been lost off the value of London's blue-chip stocks as fears over interest rate hikes ripped through global markets.
The FTSE 100 Index plunged 108.45 points to 7,334.98, as traders began pricing in the prospect of central banks enforcing tighter monetary policy in the United States, Europe and Asia.
European markets were enduring a rough ride on Monday, as the Cac 40 in France dropped 1.5% and Germany's DAX lost 0.8%.
However, US markets were fairing marginally better across the board, with the Dow Jones Industrial Average and the S&P 500 sinking 0.8% and 0.7% respectively at the time of the London market's close.
David Madden, market analyst at CMC Markets, said: "European markets are firmly in the red as the global sell-off in stocks has taken hold.
"Ever since the US posted strong average earnings last Friday, traders have been rattled by the prospect of tighter monetary policy around the world.
"Economic indicators in the US, Europe and Asia point for a need to tighten up monetary policies from various central banks.
"Equity traders were enjoying a bullish run recently, and the jolt from the major decline in the US last Friday has triggered a worldwide round of profit taking."
On the currency markets, sterling dropped 0.7% against the US dollar at 1.40, as the stronger greenback and lacklustre UK economic data cooked up a bruising session for the pound.
The latest update on Britain's powerhouse services sector made for grim reading, pointing to a slowdown in UK gross domestic product (GDP) to 0.3% in the first quarter following disappointing performances from the manufacturing and construction sectors.
Activity in the services industry slipped to a 16-month low in January, as businesses were hit with weak growth in new work.
The IHS Markit/CIPS UK Services purchasing managers' index (PMI) showed a reading of 53.0 in January, down from 54.2 in December and lower than economist expectations of a figure of 54.1.
Against the euro, sterling was 0.5% off at 1.13.
The price of oil was also drifting lower in response to rising US crude outputs. Brent crude was down 0.7% to 67.73 US dollars a barrel.
Focusing on cryptocurrencies, Bitcoin sank 11% to 7,259.38 US dollars (£5,179.71), according to data provided by Coindesk, a dramatic fall from its December highs of nearly 20,000 US dollars (£14,465).
The drop came as Lloyds Banking Group banned credit card customers from buying Bitcoin amid fears they could be left in debt as the cryptocurrency's value deflates.
Shares in Lloyds were 0.6p lower at 68.11p.
Elsewhere in UK stocks, the publisher of the Daily Mirror newspaper took a tumble after revealing that it remains locked in discussions over a deal to buy the Daily Express and Daily Star.
In a stock market announcement, Trinity Mirror responded to media reports suggesting a deal with parent firm Northern & Shell could be sewn up this week.
Last year the firm confirmed discussions were under way to buy 100% of Northern & Shell, which is run by Richard Desmond.
Shares in Trinity Mirror were down more than 1%, or 0.7p to 67.4p on the London market.
The biggest risers on the FTSE 100 Index were Kingfisher up 7.9p to 357.3p, Antofagasta up 15p to 916.4p, Glencore up 4.1p to 386.9p, Evraz up 2.8p to 367.3p.
The biggest fallers were Randgold Resources down 520p to 6,524p, Vodafone Group down 8.8p to 210.7p, G4S down 9.6p to 271.2p, AstraZeneca down 149.5p to 4,886.5p.