The FTSE 100 index equalled its worst one-day fall since the financial crisis as it plunged by nearly 5 per cent.
At one point London’s top-flight was more than 6 per cent, or 400 points, lower during the session as contagion from China’s growth slowdown spread across the globe.
The FTSE pared back some of the losses later but still closed down by 4.7 per cent, or 288.78 points, a loss of £74 billion from the value of its constituent companies and equalling a drop seen in September 2011.
Trading screens turned red as the latest dive added to a drop of nearly 3 per cent last Friday. The index fell below the 6,000-mark before reaching levels not seen since November 2012, at below the 5,800-mark, before heading higher to close at 5898.87.
Investors were reacting to the latest stock market rout in China overnight which came despite efforts by the government.
Jasper Lawler, market analyst at CMC Markets, said: “The Chinese government’s intervention into stock markets has proven counter-productive.
“Forcing institutions to buy and banning them from selling has just added to the panic of retail investors who make up 80 per cent of stock ownership in China.”
Trading screens in the UK turned red with almost all of the top 100 listed stocks falling.
Worst hit were companies in the commodities sector, where prices have been severely hit by fears over China.
BHP Billiton fell 9 per cent, or 98p at 967.5p while Glencore dropped 13 per cent, 20.7p to 137.9p and Anglo American slipped 10 per cent, or 72.6p at 660.2p.
The only riser was More Than insurer RSA, on reports that Zurich Insurance wanted to extend the timetable to make a formal £5bn offer for the company. Shares added 3.7p to 495p.
Meanwhile, telecoms giant BT was in focus after snatching rights to screen the next Ashes series after a reported £80 million five-year deal to screen Australian cricket. Shares fell 5 per cent, or 21.5p, to 414.2p.