Mining stocks suffered heavy losses due to increasing pessimism about the likelihood of Congress and the White House reaching a deal to keep funding the administration after the current budget year ends.
As the session came to a close, the prospect of a stalemate resulting in a shutdown of non-essential government services drew ever closer, pulling the FTSE-100 Index down 50.4 points to 6462.2.
Asian markets had already fallen sharply overnight amid fears that the shutdown will derail recent signs of recovery in the US economy.
The mood was not helped by manufacturing figures from China showing the sector grew at a slower pace than expected.
European markets were also sharply lower, amid fears over the future of the Italian economy after Silvio Berlusconi pulled five ministers belonging to his party out of the coalition government.
On Wall Street, the Dow Jones Industrial Average was down by more than 100 points.
Michael Hewson, senior market analyst at CMC Markets UK, said: "Markets do seem resigned to the fact that we will get a short-term shutdown.
"But one has to hope that once and if that happens, wiser heads will prevail and both parties in this political tug-of-war will see sense and at least pass a temporary budget."
The currency markets were less affected, with sterling flat against the greenback at $1.62 dollars and against the euro at 1.20 euros.
Among the miners, Fresnillo fell 27p to 973p while Glencore Xstrata was off 7.3p at 336.7p and Rio Tinto slipped 44p to 3023p, with Anglo American off 22p at 1518p.
On a shortened risers board, housebuilder Persimmon set the pace after David Cameron announced that the second phase of the Government's Help to Buy initiative will be introduced three months earlier than expected.
The announcement helped reverse losses at the end of last week when new powers handed to Bank of England to monitor the scheme sparked fears that it faced being narrowed in scope sooner than expected.
Persimmon shares surged 25p to 1086p, while in the FTSE-250, Bellway was up 53p to 1315p, with Taylor Wimpey climbing 3.4p to 100.4p, Redrow up 6p to 233p and Barratt Developments rising 6.5p to 308.6p.
Other risers included William Hill after Deutsche Bank introduced a buy rating on the bookmaker. Shares were 1p higher to 403p.
The biggest risers on the FTSE-100 were Persimmon, up 25p to 1086p, Vedanta Resources, up 9p to 1082p, Centrica up 2.7p to 369.7p and Burberry up 11p to 1634p.
The biggest fallers were GKN, down 10.1p to 342p, Fresnillo down 27p to 973p, BAE Systems off 12.3p at 454.4p and ARM Holdings down 24p to 986p.