The FTSE 100 Index has fallen past the 5,100 mark to hit 5099.6 after losing 103.8 points.
Heavy falls on the Asian and US markets overnight have been compounded by weak retail sales figures and a 13% fall in mortgage lending.
Tech shares are some of the biggest fallers and lost much of their shine after yesterday's gains.
Sentiment was hit by a downbeat trading statement by former Footsie company CMG.
The Anglo-Dutch software firm fell 26%, or 75p, to 209p after reporting a drop in customer demand following the September 11 terrorist attacks. It is also cutting 470 jobs.
Of the blue-chip tech stocks losing ground, Sage has dropped 7% or 14¼p to 190½p, Logica has shed 10% or 75p at 710p, and Arm Holdings has dipped 29p at 305p.
Banks are also dragging the market lower, with Barclays down 54p at £20.56, HSBC off 35p at 740p, Royal Bank of Scotland 15p lower at £16.30 and Lloyds TSB down 15½p at 703½p.
Rolls-Royce shares have lost 9¼p to 130¾p as analysts are expecting a trading update in the next few days.
British Airways is also back under pressure, falling 12¼p to 145p.
Only a handful of stocks were making positive strides, with Prudential gaining 2% or 17p at 735p on the back of a 54% rise in nine-month sales.