The Footsie ended the day down 157.46 points at 4,914.22 with every blue-chip stock in the red.
The sell off came on the back of fresh concerns over the state of the global economic recovery.
Joshua Raymond, market strategist at City Index, said: "Considering how many times the FTSE 100 has re-tested levels between 4,900 and 5,000 since September, there is a battle going on between investors who feel stocks are worth buying at these levels and those that believe stock values have outgrown the wider economic recovery."
Worries over the global recovery reverberated in markets around the world, with Wall Street's Dow Jones Industrial Average plunging more than 2 per cent in early trading. The Dax in Germany and France's CAC 40 both fell more than 3 per cent.
The effect of European austerity plans on economic growth added to the negative mix, while looming repayments of European Central Bank loans also led to fresh fears over liquidity pressures in the banking sector.
The euro fell to a new 19-month low against the pound of almost €1.24, while sterling also touched $1.51 against the dollar at one stage.
Among the miners, Rio Tinto was down 208p - more than 6 per cent - to 3,048p as metal prices slipped. Meanwhile, under-pressure BP's shares were back near last week's 14-year low after dropping 5.35p to 302.9p. Shell dropped 53p to 1,638.5p.
Barclays was also among the biggest top-flight fallers with a 6 per cent or 18p slide to 267.35p as the stock continued to suffer following Monday's rating downgrade from Nomura.
In corporate news, shares in Carpetright fell by more than 10 per cent, down 70p to 640p, after its full-year results came in slightly below City expectations.
The floor covering specialist posted a 64 per cent rise in profits but reiterated warnings over the uncertain consumer spending outlook.
The biggest fall in the FTSE 250 Index was again posted by Connaught as investors continued to dump shares in the social housing firm after Friday's warning that the emergency Budget would hit revenues and profits. Shares, which were at 325p last week, tumbled a further 27.8p to 107.2p or 21 per cent.
Fresh takeover developments drove a further rise in shares in power protection specialist Chloride, which climbed 11 per cent or 38.6p to 387.1p.
The latest rally for the FTSE 250 company came after US firm Emerson trumped an earlier agreed deal between Chloride and Zurich-based ABB by offering 375p a share, equivalent to 997 million.
It means shareholders that have remained on board since the start of the year have been rewarded with a doubling in the company's share price.
Kesa - which owns Comet - was another strong riser early on after activist investor Knight Vinke increased its stake in the retailer to 3 per cent.
The interest in Kesa has fuelled speculation that Knight Vinke may push for a break-up of the company, although shares lost initial gains to closed down 2.4p at 120p.