More than £45 billion was wiped off the FTSE 100 in the biggest one-day drop since the Brexit vote, as the pound surged to a six-month high after Prime Minister Theresa May announced plans for a general election on June 8.
London's blue chip index tumbled 2.4% or 180.09 points, ending the day at 7147.5.
It marked the biggest one-day percentage drop for the FTSE 100 since June 24 2016, when it fell 3.1%
The FTSE 100 was hurt by the strength of the pound, which surged more than 1.5% against the US dollar to trade at 1.275, which was its highest level since early October.
Multinational stocks on the blue chip index tend to benefit when foreign currencies are stronger.
Versus the euro, sterling rose more than 1% to a four-month high at 1.192.
Investors were digesting news of the snap election, as Downing Street had previously denied plans for a poll before 2020.
Experts have pointed to polls which suggest the Conservatives will gain a stronger footing following the general election, giving the party a mandate to push forward the Brexit agenda, which could provide more certainty for investors.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: "Currency markets have roared their approval for a snap UK election, with the pound enjoying strong gains against the dollar and the euro.
"The fall in the stock market is not a negative response to the UK election per se, rather it is a knock-on effect of a surging pound, combined with price falls in some key commodity markets, all of which has taken its toll on the heavyweights of the FTSE 100 index."
Across Europe, the French Cac 40 and German Dax fell around 1.6% and 0.9%, respectively.
It comes as polls suggest a tight race between the top four presidential hopefuls, including far-right candidate Marine Le Pen, in the French elections, which will head into its first round of voting on Sunday.
In oil markets, Brent crude prices were down over 1.2% at 54.76 US dollars per barrel (£42.89), as data from the US Energy Information Administration pointed to a sharp rise in American shale production.
The drop in oil prices weighed on crude producers on the FTSE 100, sending BP lower by 18.5p to 452.6p, and Royal Dutch Shell's B shares down 67.5p to 2,125p.
London's blue chip index was also hit by a drop in iron ore prices, which sent mining stocks to the bottom of the index.
BHP Billiton fell 71p to 1,198p, Glencore slumped 17.25p to 291.8p, Anglo American dropped 60p to 1,110p, and Rio Tinto fell 118p to 3,003p.
Away from commodities, Royal Mail shares closed lower by 6.8p at 417.3p, hit by the threat of industrial action after announcing plans to close its defined benefit pension scheme next year.
The biggest risers on the FTSE 100 were Marks and Spencer Group up 6.7p to 353.5p, Barratt Developments up 8p to 580p, Persimmon up 21p to 2,242p, and Taylor Wimpey up 1.7p to 198.6p.
The biggest fallers on the FTSE 100 were BHP Billiton down 71p to 1,198p, Glencore down 17.25p to 291.8p, Anglo American down 60p to 1,110p, and BP down 18.5p to 452.6p.
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