Top flight shares plunged into the red in afternoon trading weighed by banks and miners. The FTSE 100 Index tumbled 93.5 points to 6924.1, after Lloyds Banking Group suffered further writedowns and Antofagasta posted disappointing production forecasts. The FTSE 250 Index fell 189.3 points to 17612.5.
The banking giant said it has set aside an additional £1bn ($1.2bn) to cover compensation for mis-sold payment protection insurance (PPI).
The provision means the bank has spent a combined £17bn to tackle PPI mis-selling, making it the lender that has been worst hit by the scandal.
Chile-based mining giant Antofagasta, fell 5%, or 27.5p to 513p, following an update that saw the company shift full year output expectations towards the lower end of its previous guidance.
Falls across blue chip shares, led by financial services and commodities firms, wiped almost £25bn from London's main benchmark.
IG market analyst Joshua Mahony said: "The FTSE 100 sell-off that started towards the back end of yesterday's session has intensified, with the rejection from all-time highs earlier in the month now looking more important than ever."
In afternoon trading the biggest risers in the FTSE 100 Index were International Airlines Group (+16.2p to 418p), EasyJet (+18p to 943p), Tesco (+3.1p to 213.3p), Marks & Spencer (+4.4p to 338.8p) and Sainsbury's (+2.7p to 243p).
The biggest fallers in the FTSE 100 Index were Antofagasta (-27.5p to 513p), Whitbread (-146p to 3553p), Anglo American (-38p to 1076p), Hargreaves Landsdown (-38p to 1129p) and Royal Dutch Shell (-60p to 2122.5p).
In afternoon trading the biggest risers in the FTSE 250 Index were Vectura Group (+7.6p to 138.3p), Petra Diamonds (+6.5p to 157p), Sports Direct International (+8p to 283.5p), Aldermore Group (+4.7p to 174.2p) and FirstGroup (+2.7p to 107.5p).
The biggest fallers in the FTSE 250 Index were Petrofac (-41.5p to 863.5p), Morgan Advanced Materials (-10.9p to 267.1p), BGEO Group (-116p to 2937p), Hunting (-19.5p to 504.5p) and Just Eat (-17p to 505.5p).