European markets fell sharply in the opening minutes of trade as the unexpected deposit levy-mandate on the Cyprus bailout package ushered in fresh eurozone concerns.

The FTSEurofirst 300 index tracking the region's blue-chip stocks dropped 0.1 percent to 1,190.5.

The UK's FTSE 100 fell 1.6 percent while Germany's DAX was down 1.7 percent. Spain's IBEX and France's CAC-40 slipped 2.9 and 2.1 percent respectively.

In Italy, the FTSE MIB slid 2.8 percent. Stoxx europe 600 banking stocks index fell 2.2 percent.

The single currency remained weak against the dollar, trading at about $1.29.

Eurozone concerns have returned to haunt investors after Cyprus' international lenders asked for an unprecedented levy on bank deposits in exchange for the bailout package. The demand has given rise to speculation that it might become a model for the future, when larger economies ask for bailout aid.

The bailout terms mandate that Cypriots with lower than 100,000 euros in their accounts will have to pay a one-off tax of 6.75 percent while those with more should pay 9.9 percent. Fears had triggered a rush to cash machines to withdraw money.

Investors are now keeping a close watch on the Cyprus parliament, which is expected to take a final call on the matter. If the lawmakers fail to reach an agreement on the matter, local banks could be shut down to avoid mass withdrawals.

Asian markets had ended lower earlier as the Cyprus uncertainty dampened sentiments and yen rebounded from its record low levels against its peers.

Japan's Nikkei average index ended 2.7 percent lower to 12220.6 while South Korea's KOSPI was down 0.9percent to 1968.2. Australia's S&P/ASX 200 slipped 2.05 percent to 5015.4.

China's Shanghai Composite Index was down 1.7 percent to 2240.02. Hong Kong's Hang Seng Index traded 2.1 percent lower to 22066.01 towards close.

Markets are awaiting the UK Budget this week, which analysts expect to be fiscally neutral and extend the current focus on structural deficit reduction. Across the Atlantic, the US Federal Reserve is also set to meet for a policy review this week, in which the central bank is widely expected to stick to its current monetary stand.

Japanese market sentiments weakened after the yen firmed against its peers, touching 93.45 per dollar early in the day. The euro, which has come under renewed pressure, eased as low as to ¥121.45. Exporter shares, which had recently climbed on stimulus optimism, weighed the benchmark index lower.

The Japanese parliament's approval of the pro-stimulus Haruhiko Kuroda as the next governor of the country's national bank has reinforced speculation that the government will aggressively seek monetary easing measures to boost its ailing economy. Investors are now awaiting the central bank's next policy meet, scheduled for early April.

The property sector once again came under pressure in China after official data showed that new home prices in most cities tracked by the government rose for the second straight month in February. Rising real estate prices have become a challenge for the Chinese government, which had stepped up its efforts to cool the sector this month.