Global stock markets sunk into the red as last week's post-Brexit relief rally unravelled while the pound also sunk to fresh 31-year lows against the dollar.
The FTSE 100 Index shed 1.6% - down 102.1 points to 6443.3 - and there were also hefty falls across European indices amid mounting fears over the impact of the vote to leave the EU.
Sterling slumped below 1.28 US dollars for the first time since 1985 at one stage and also dropped as low as 1.16 euros before paring back losses slightly.
The market falls brought an abrupt halt to last week's bounce-back, with moves by fund managers to lock down their commercial property funds, fuelling investor fears.
Germany's Dax and the Cac 40 in France were around 2% lower each, with oil prices also heading sharply lower in a sign of the market jitters.
Brent crude dropped 2% to 47.19 US dollars.
Craig Erlam, senior market analyst at OANDA, said: "Negativity finally appears to have gripped investors following a rebound last week that appeared to suggest that Brexit fears were easing.
"These have ramped up this week with the latest concerns coming from the commercial property sector after funds blocked withdrawals due to a lack of liquidity in the market."
M&G became the third fund manager to suspend trading in its property fund late on Tuesday, joining Aviva Investors and Standard Life after investors rushed to pull out of UK commercial property.
The property woes added to warnings from the Bank of England that Brexit effects were already taking hold, as well as a slew of recent economic figures pointing to a sharp slowdown in growth.
A move by the Bank of England to help prop up the British economy on Tuesday, by relaxing rules for banks to boost lending by up to £150 billion, failed to halt the pound's slide.
Andy Scott, economist at HiFX, warned there would be further falls for sterling, predicting a drop to 1.25 US dollars and 1.10 euros.
He said the pound would suffer as the "economic outlook significantly worsens and the UK awaits political leadership to provide some certainty".
While the FTSE 100 still remains above its pre-Brexit vote highs, it is a gloomier picture in the FTSE 250 Index, which is more than 10% below its level before the referendum result.
The second tier, which is seen as a more accurate barometer of UK sentiment, was down another 1.3% in the latest sell-off.
The property market fears saw housebuilders endure another session in the red, with blue chips Barratt Developments and Taylor Wimpey dropping by another 5% and 4% respectively after heavy declines on Tuesday.
Fellow builder Redrow dropped 6% in the FTSE 250, while estate agents Savills and Countrywide were also under pressure.
Airlines and supermarkets joined them in negative territory after being hit by downbeat broker notes, with Tesco tumbling by 9%, Morrisons 7% weaker and Sainsbury's 4% lower.
Among airlines, British Airways owner IAG was down 7% and easyJet off 4%.