The latest slide saw the FTSE 100 Index fall 23.2 points to 6754.6, adding to a near one per cent fall on Friday.
It came as the pound briefly touched the 1.70 barrier against the US dollar on expectations that the Bank of England could increase interest rates as soon as October.
The US Federal Reserve is also likely to continue the tapering of its quantitative easing programme on Wednesday, with analysts not expecting policymakers to alter the scale of the reduction in response to the conflict in Iraq.
Jitters over the Middle East saw German's Dax and France's Cac 40 also head lower, while New York's Dow Jones Industrial Average was in negative territory as the International Monetary Fund cut its growth forecast for America this year.
On currency markets, the pound was slightly ahead against the greenback though it retreated below the 1.70 US dollars mark by the end of the session. It slipped slightly against the single currency to 1.25 euros.
In equities, mining stocks enjoyed a decent session as commodity prices rose. Silver miner Fresnillo lifted 15p to 822p and BHP Billiton added 25p to 1865p.
Meanwhile, with the price of Brent crude remaining at around $113 a barrel, exploration firm Tullow Oil climbed 15p to 822p and Royal Dutch Shell gained 11p to 2494p though BP shares lost early gains to finish 1.9p down at 505.6p.
The prospect of rising fuel costs meant easyJet fell 22p to 1435p, although British Airways owner International Airlines Group steadied after recent losses to finish just 0.8p lower at 378.1p.
Elsewhere, takeover speculation surrounding medical devices firm Smith & Nephew cooled after a potential suitor unveiled a £25 billion deal to buy a different firm.
US firm Medtronic, which has been linked to a bid for Hull-based S&N, is to buy Ireland's Covidien, a maker of devices used in surgical procedures.
The deal removed some of the froth in S&N shares as Stryker and now Medtronic have been crossed off a list of possible bidders. Shares fell early in the session but pared back losses to close just 1p down at 1070p.
Majestic Wine slid nearly four per cent, or 16.8p, to 416.8p as it reported flat profits and warned that its rate of online growth had slowed due to new entrants into the market.
The biggest FTSE 100 risers were Fresnillo up 15p at 822p, Tullow Oil up 15p at 856.5p, Glencore up 4.5p at 322.5p and Aberdeen Asset Management up 6.1p at 445.1p. The biggest FTSE 100 fallers were London Stock Exchange down 47p at 1920p, BT down 9.4p at 384.9p, Melrose Industries down 6.3p at 273.9p and Experian down 23p at 1005p.