While US shares were mixed after suffering heavy falls throughout the day in New York, London's FTSE 100 ended down 4.1% or 250 points at 5,859
This is the FTSE's biggest one-day percentage fall since March 2003.
The falls came despite the Federal Reserve pumping an extra $17bn (£8.6bn) into the US banking system.
Central banks have been taking such action to try to restore confidence and avoid a credit squeeze.
Over the past week, the Fed has now injected $88bn (£44.3bn), while the European Central Bank has put up 211bn euros ($283.2bn; £142.6bn).
Unknown scale
However, investors appear to remain unconvinced that the action of the central banks will be enough, and more than £100bn has now been wiped off the value of the UK's leading shares alone since last Wednesday.
In New York, the Dow Jones index of top US shares was down 0.1% at 12,847 at the close of the trading session, while the Nasdaq had fallen just over 1% at 1,846.09.
These falls had been worse earlier on in the day.
Back in Europe, Germany's Dax ended down 2.4% to 7,270 and France's Cac lost 3.3% to 5,265.
The recent financial market volatility has been triggered by the US sub-prime mortgage sector, which offers higher-risk loans to people with a poor credit history.
As US interest rates have risen and the housing bubble has burst, a growing number of sub-prime borrowers have defaulted on their loans.
This has led to extensive financial difficulties for a number of investment funds with heavy exposure to the sector - and triggered fears of a wider financial crisis.
While some estimates say $300bn in loans could be at risk, one of the biggest worries for investors is not knowing the eventual scale of the problem.
"The problems in the sub-prime mortgage market will linger on for a while," said Bart Ingels, an analyst at Fortis Bank, in Brussels.
"Some days it was a little bit better but then negative news came to the fore, and it will go on like that for a while."
Courtesy: BBC News
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