European markets fell sharply as Greece's deadlocked debt talks saw the country's banks shut their doors as it prepares for a referendum that will effectively decide whether to stay in the euro.
The FTSE 100 Index fell two per cent, or 133.2 points, to 6620.5 after Greece closed its banks for a week and will see voters on Sunday decide on the latest deal put forward by its creditors.
Athens is due to make a 1.6 billion euro (£1.1 billion) payment to the International Monetary Fund (IMF) tomorrow - the same day that its current bailout expires. Greece has been in talks for months with its three creditors - the IMF, the European Central Bank (ECB) and the European Commission.
Greece has also introduced capital controls that mean Greeks cannot withdraw more than 60 euros (£42) a day during this period.
IG market analyst Alastair McCaig said: "Considering that both Greece and its creditors ultimately want the same thing - Greece to remain in the eurozone - their inability to reach an agreement is all the more staggering."
France's Cac40 and Germany's Dax were both more than three per cent down in early trading.
French President Francois Hollande says France has "nothing to fear" from an eventual Greek departure from the eurozone.
The ECB has vowed to do whatever it takes to prevent a financial panic.
The pound is flat against the euro at 1.41 despite the crisis. Sterling is slightly up against the US dollar, at just under 1.58.
Defensive commodity stocks were among the few sectors making any headway with gold miner Randgold Resources up 26p to 4400p and silver miner Fresnillo up 2.5p to 700.5p.
But in general the top flight is a sea of red with events in Greece sending shares down across a wide variety of sectors.
Banks are lower with HSBC down 12.8p to 577.1p and Royal Bank of Scotland falling 9.6p to 357.6p.
Holiday firms and airlines were also down after the Tunisia tourist attacks which left 38 dead, with First Choice owner TUI 79p lower to 1034p and British Airways parent International Airlines Group slipping 21.3p to 493.2p.
In the FTSE 250 Online grocer Ocado lifted 4.3p to 430p, after reports said the firm is close to securing a deal with an international retailer which will allow the company to expand outside the UK for the first time.
In the past the firm has been linked with deals with Carrefour of France and Safeway of the US.
The group, which has online deals with Waitrose and Morrisons, also reports its half-year results tomorrow.
The biggest risers on the FTSE 100 Index were Intertek up 50p at 2472p, Randgold Resources up 26p to 4400p, and Fresnillo up 2.5p to 700.5p in a shortened leaderboard.
The biggest fallers on the FTSE 100 Index were TUI down 79p at 1034p, International Airlines Group down 21.3p at 493.2p, Standard Life down 17.8p at 458.4p and ARM Holdings down 40p at 1050p.
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