Blue chip shares fell as the pound spiked after Prime Minister Theresa May confirmed she intends to pull the UK out of the European Union's Single Market.
The FTSE 100 Index slumped 66.8 points to 7260.3 in afternoon trading, taking the top flight shares below 7300 for the first time since crossing that peak last week. The FTSE 250 fell 59.2 points to 18248.5.
The move came as sterling was boosted after May added she would push for the "freest possible trade" with European countries and to sign new deals with others around the world.
The pound lifted around 3%, and is on course for its highest one day rise since 2008.
Footsie shares are less appealing to investors when the pound rises because most of the sales of firms in the index are earned aboard, hitting revenues when translated back into sterling. Sterling and UK equity markets have been locked in a powerful inverse relationship for several weeks.
IG chief market analyst Chris Beauchamp said: "Currency movements seem to be the driving force behind markets now, seemingly more than ever, and this is why we have seen the FTSE's losses increase even as the pound rallies."
Rolls-Royce was the strongest performer in the top flight, despite agreeing to pay £671m ($809.6m, €763m) to British and other regulators to settle bribery and corruption charges on 16 January.
The engine manufacturer said the case relates to "bribery and corruption involving intermediaries in a number of overseas markets".
Rolls-Royce jump start
The Serious Fraud Office has been investigating these concerns since 2012. Rolls-Royce has also reached an agreement with US Department of Justice and a Leniency Agreement with Brazil's Ministério Público Federal.
But shares in the engine maker jumped 6%, or 39p to 704p, with investors seemingly relieved this long-running issue had been resolved.
The biggest risers in the FTSE 100 Index were Rolls-Royce (+39p to 704p), Hargreaves Lansdown (+56p to 1335p), Standard Chartered (+30.7p to 755p), EasyJet (+41p to 1064p) and Royal Bank of Scotland (+8.5p to 223.4p).
The biggest fallers in the FTSE 100 Index were Intertek Group (-125p to 3438p), Diageo (-62p to 2133.5p), Burberry Group (-43p to 1594p), British American Tobacco (-114p to 4648.5p) and Wolseley (-114p to 4911p).
The biggest risers in the FTSE 250 Index were Capital & Counties Properties (+12.3p to 284.3p), Aldermore Group (+9.3p to 226.3p), Dechra Pharmaceuticals (+58p to 1424p), International Personal Finance (+5p to 170.8p) and Wizz Air (+46p to 1847p).
The biggest fallers in the FTSE 250 Index were Vedanta Resources (-38p to 1002p), Worldwide Healthcare Trust (-74p to 2126p), PZ Cussons (-10.3p to 331.6p), Kaz Minerals (-12.5p to 413.7p) and JPMorgan Indian Investment Trust (-17.5p to 620.5p).