The Ftse 100 plummeted 0.9 percentage points to 10,810.50 just minutes after opening at 8am.
London’s blue-chip index sank sharply from Friday’s record close of 10,910.55.
It comes in the wake of Saturday’s outbreak of war in Iran, which has seen Tehran launch retaliatory strikes on several Middle Eastern countries, including the UAE.
As of 8.14am, the pound was also down 0.94 per cent to 1.3354 against the US dollar.
The Ftse dropped considerably after opening
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GETTY/Google Finance
Markets are reacting today to Operation Epic Fury, in which Israeli and US strikes hit targets in Iran and killed the country’s Supreme Leader, Ali Khamenei.
The dramatic drop signals a broad fall in share prices, typically driven by weak earnings, poor economic data or growing investor pessimism.
Elsewhere, shortly after 7am, the Nikkei was down 1.35 per cent to just under 58,000, while the HSI plunged 2.32 per cent, losing more than 616 points.
The Nifty 50 was down 1.93 per cent.
Airlines, hotels, banks and retailers are driving the downslide of UK stocks.
British Airways owner IAG is the biggest faller, down 9.78 per cent.
It is followed by Informa, off 6.7 per cent, and hotel group IHG, down 5.3 per cent. Barclays, easyJet, Standard Chartered, HSBC and Burberry are next, all falling more than four per cent.
On the upside, defence stocks lead the risers: BAE Systems is up 6.9 per cent, followed by gold miner Endeavour at 5.6 per cent, while Shell and BP are both more than five per cent higher.
Brent crude is up almost 10 per cent to just under $80 a barrel, with US WTI rising nine per cent to just over $73.
UK natural gas prices have jumped 25 per cent to 98.5p per therm, close to January’s 10‑month highs.
Gold is up 2.4 per cent to above $5,400 an ounce, while silver has risen 1.7 per cent to $95.4 an ounce.
Copper is down 0.7 per cent, with coal and steel also lower and iron ore flat.
Chris Beauchamp, chief market analyst at IG, says global equities have been swept up in “broad‑based selling”, with the Ftse 100 no exception.
He adds that the index “would be 50 points lower were it not for BP and Shell”, which have surged as oil prices jump, while BAE Systems is also seeing strong buying given its role as a key supplier to US and Gulf militaries.
He warns that markets “could be standing on the cusp of a much longer‑term selloff than anything we have seen for months”, as investors cut exposure and wait for further developments in a conflict expected to last weeks.