More than £27 billion was wiped off the value of blue-chip stocks on Thursday as investors remained spooked by the simmering tensions between the United States and North Korea.
The FTSE 100 Index closed down 1.4%, or 108.12 points to 7,389.94, with Pyongyang unveiling plans to launch a volley of ballistic missiles towards the US Pacific territory of Guam, an America military hub.
The statement said the plan, which involves the missiles hitting waters 19 to 25 miles from the island, could be sent to leader Kim Jong Un for approval within a week or so.
David Madden, market analyst at CMC Markets UK, said: "The showdown between the two nations has scared off many investors.
"Whenever dealers hear the word 'war' they usually run for the hills, and that is exactly what we have seen today. While tensions are running high, traders will be reluctant to be long."
The top-flight also sank lower as a number of stocks went ex-dividend, a process where new buyers no longer qualify for the latest dividend payment.
It was the biggest daily fall on the FTSE 100 since April 18 this year when the market lost 180 points.
Across Europe, Gemany's Dax was off 1.2% and the Cac 40 in France dropped by 0.6%.
On the currency markets, the pound edged 0.2% lower versus the US dollar at 1.298, as traders responded to another tranche of lacklustre data from the UK economy.
Britain's trade deficit widened in June as sterling's slump since the Brexit vote failed to provide a boost for exports, according to figures from the Office for National Statistics (ONS).
The UK's deficit in goods and services, the gap between exports and imports, climbed by £2 billion to £4.6 billion between May and June after a drop in exported goods.
Separate ONS data showed that a pick-up in Britain's industrial output in June was marred by a slump in car production, while construction output also fell.
Sterling was also down 0.1% versus the euro at 1.104.
In oil, Brent crude was dragged 0.5% lower at 52.46 US dollars a barrel despite Opec forecasting increased demand for oil next year.
The oil cartel's monthly report suggested efforts to drive down the global supply glut were beginning to gain traction.
Focusing on UK stocks, BT and Lloyds Banking Group were among the biggest fallers after going ex-dividend.
BT down was more than 4%, or 14.4p to 298.9p, while Lloyds fell 2.1p to 64.83p.
Prudential also took a downward turn after announcing plans to merge its M&G asset management arm with its UK life and pensions business - a move which is likely to trigger job losses.
The insurance giant said the combined business will be called M&G Prudential and will manage £332 billion of assets for more than six million customers in the UK and internationally.
It said job cuts are likely as it looks to save £145 million a year by 2022, but it said it was too early to say how this will affect the combined workforce of nearly 7,300 in the UK.
Shares were down 15.5p to 1,826p.
The biggest risers on the FTSE 100 Index were Coca-Cola HBC up 219p to 2,592p, WorldPay up 19p to 407.5p, Randgold Resources up 95p to 7,475p, WPP up 19p to 1,581p.
The biggest fallers on the FTSE 100 were BT Group down 14.4p to 298.9p, Rio Tinto down 119.5p to 3,479.5p, Lloyds Banking Group down 2.1p to 64.83p, Intercontinental Hotels Group down 128p to 4,036p.
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