The FTSE 100 plunged to its worst day in three months on the back of fears that a second wave of Covid-19 will force the Government to launch harsh lockdown measures.
All but four firms in the top index closed in the red as traders witnessed the index hit a four month intra-day low before recovering marginally later in the session.
Shares in hospitality and leisure firms were particularly dented by the rapid sell-off.
London's top flight closed 202.76 points lower at 5,804.29 at the end of trading on Monday.
Sentiment also dived across Europe's other major markets, with the German Dax declining at an even faster rate than the FTSE due to its own increase in cases.
The German Dax decreased by 4.37%, while the French Cac moved 3.74% lower.
Connor Campbell, financial analyst at Spreadex, said: "Months of warning signs and buried fears struck at once on Monday, the market buckling under the threat of another round of national lockdowns.
"Though most of the headlines have been focused on Europe, the United States is having its own nightmare.
"There's no bipartisan fiscal stimulus in sight, an already heated election just got all the more intense following the death of Ruth Bader Ginsburg, and Covid-19-related deaths are fast approaching 200,000."
The Dow Jones went into a screeching reversal as a result, sinking to its worst price since the start of August and 2,400 points adrift from its early-September highs.
Meanwhile, sterling dropped on the back of a rebound in the dollar, having already a suffered poor recent trading amid uncertainty over Brexit talks.
The pound fell by 0.94% versus the US dollar at 1.279 and was down 0.06% against the euro at 1.09.
Airline and pub stocks were particularly hard hit by lockdown fears, with British Airways owner IAG hitting the foot of the FTSE, while Mitchell & Butlers and JD Wetherspoon both plunged in value.
The only risers on Monday were three of the UK's largest supermarket chains and takeaway delivery firm Just Eat Takeaway, which all continued to trade strongly during the first UK lockdown.
Elsewhere, Rolls-Royce shares plummeted after the engineering giant confirmed it is considering tapping investors for £2.5 billion to shore up its finances.
It confirmed reports that the fundraiser was a funding option being reviewed by the business, sending shares 19.45p lower to 160.7p.
Security giant G4S fell by 7.6p to 186p after revealed its revenues have been "resilient" in the first eight months of the year, as it remains locked in a potential hostile takeover battle with a Canadian rival.
The price of oil tumbled into the red amid concerns that lockdown restrictions could hit the travel sector and weigh on demand.
The price of a barrel of Brent crude oil decreased by 4.73% to 41.11 US dollars.
The biggest risers on the FTSE 100 were Tesco, up 5.9p at 225.5p, Morrisons, up 3.95p at 178.2p, Just Eat Takeaway, up 116p at 8,544p, and Sainsbury's, up 1.75p at 196.75p.
The biggest fallers of the day were IAG, down 13.35p at 97.2p, Rolls-Royce, down 19.45p at 160.7p, Melrose, down 10.6p at 109.4p, and ITV, down 4.76p at 59.84p.
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