TESCO shares crashed to an 11-year low after the supermarket warned it may have overstated profits by £250 million.
The revelation, which triggered an independent investigation by Deloitte, meant the group has now downgraded profit forecasts three times in as many months.
Tesco's turmoil added to a difficult session for the wider FTSE 100 Index, which was 64.3 points lower at 6837.9 on fears over the health of China's economy ahead of a manufacturing survey later this week.
Mining stocks were badly impacted by the worries over Asian demand as Rio Tinto dropped 120.5p to 3058.5p and Anglo American fell 45.5p to 1426.5p.
The pound rose against the dollar, at 1.63, as investors focused on the timing of an interest rate hike ahead of a speech by Bank of England Governor in Wales on Thursday. Sterling also rose against the euro, at 1.27.
The biggest fall in the top flight came from Tesco after the shock revelation over its UK profits.
It is early days in the inquiry but Tesco said four UK executives have been suspended so it can carry out a "full and frank investigation".
Trading volume in Tesco stood at almost six times its 90-day daily average.
Shares were more than 11 per cent lower, off 26.6p at 203p with a number of analysts cutting price targets for the stock.
Other supermarkets were also impacted by the developments as Morrisons dropped 3p to 179p and Sainsbury's declined 5.5p to 278.8p.
Meanwhile, some of the stocks on the front foot after the Scottish referendum result gave up the gains seen on Friday.
Standard Life was 1.3p lower at 420.3p.
While Lloyd Banking Group was off 0.6p to 76.3p on continued speculation that it will move operations south of the border despite the No vote.
Among the risers in the FTSE 100 Index, car insurer Admiral lifted 16p to 1250p and BAE Systems climbed 3.4p to 475.1p.
Moss Bros made headway after it reported like-for-like sales rose six per cent in the first seven weeks of the second half of the year to September 13.
This maintained the trend seen in the first half of the year, when profits fell nine per cent to £2m due to the cost of its store refurbishment programme.
Cantor Fitzgerald analyst Freddie George said Moss Bros's interim results were marginally better than expected, helping shares rise by four per cent or 3.5p to 94.25p.
The biggest risers in the FTSE 100 Index were: TUI Travel up 7.2p at 391p, Admiral Group up 16p at 1250p, Petrofac up 10p at 1058p and Wolseley up 28p at 3343p.
The biggest fallers in the FTSE 100 Index were Tesco down 26.6p at 203p, Glencore down 17.6p at 341.9p, Rio Tinto down 120.5p at 3058.5p and BHP Billiton down 63p at 1730.5p.
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