The FTSE 100 Index dropped more than 100 points as disappointing US data and a fall in the oil price hit shares.
By the close of trading, the Footsie was down nearly 2%, off 105.1 points at 5264.7.
Most of the slump occurred during afternoon trading, partly hurt by weak data on job figures in the US and a fall in heavyweight oil stocks.
BP was down 16p at 512½p, a 3% fall, while Shell was off 12½p at 469½p. Smaller rival Enterprise Oil was down 4%, or 17p at 460p, while exploration firm BG was off 15¼p at 257½p.
Banking stocks were also exerting downwards pressure on the market, with Abbey National off 20p at 970p, Barclays down 26p at £21.64, HBOS off 18p at 835p, Lloyds TSB 10½p lower at 723p, Royal Bank of Scotland down 22p at £16.18 and Standard Chartered 15p lower at 876p.
Retailers were another sector falling as the sentiment worsened.
Next was off 3%, down 33p at 918p, Burberry-to-Argos owner Great Universal Stores slipped 5p to 663p and health and beauty chain Boots was off 12p at 593p.
Among the supermarket firms on the slide were Safeway, down 3¾p at 300p and Sainsbury's, off 9½p at 352½p.
Risers were few and far between but included South African Breweries, up 3%, or 15p at 468p.
Among the smaller stocks, discount fashion retailer TJ Hughes shed 10% or 13½p at 120½p after updating investors on takeover talks.
It said a possible 95p-per-share offer, led by retail entrepreneur Chris Gorman, was "in no way" a fair value for the business.
The biggest Footsie risers were Schroders, up 33p at 893p, South African Breweries up 15p at 468p, Shire Pharmaceuticals up 20p at 924p and Brambles Industries up 7p at 342p.
The heaviest fallers were Logica, down 48½p at 816½p, BG down 15¼p at 257½p, BSkyB down 45p at 848p and Diageo down 38½p at 734p.