Some investors took refuge in firms producing gold, seen as a safe-haven asset, with Fresnillo (>> Fresnillo Plc) closing up 7 percent after hitting a three-year high and Randgold Resources (>> Randgold Resources Limited) gaining 9 percent.
The FTSE 100 <.FTSE> ended 2.6 percent lower at 5,982.20 points, taking total losses to 5.6 percent in two sessions and wiping off nearly 100 billion pounds ($132 billion) since the referendum results early on Friday. Shares in easyJet (>> easyJet plc) recorded their biggest one-day percentage drop in 12 years.
The domestically-focused mid-cap index <.FTMC> lost nearly 7 percent after reaching its lowest since late 2014 following growing concerns about the country's growth and earnings outlook after the poll outcome.
"These uncertainties pose significant risks for the investment outlook," said Larry Hatheway, chief economist and head of multi-asset portfolio solutions at GAM.
"Against the backdrop of an already slowing UK economy, Brexit anxiety could precipitate a large enough reduction in consumer and business spending to tip the UK economy into recession."
British financial stocks declined the most, with the sector index <.FTNMX8350> ending 7.3 percent weaker after a seven-year low. Royal Bank of Scotland (>> Royal Bank of Scotland Group plc) and Barclays (>> Barclays PLC) dropped 15 percent and 17.3 percent respectively, also hit by broker downgrades and by JP Morgan's cutting its rating on all domestic banks.
The mid-cap bank Shawbrook (>> Shawbrook Group PLC) plummeted 30 percent.
"The UK's vote to leave the EU will drive tectonic plate shifts in European bank investing. We move to a slow growth/modestly recessionary scenario for UK banks," analysts at Jefferies said in a note, downgrading RBS to "hold" and Barclays to "underperform".
Investors seemed to ignore finance minister George Osborne's assertion on Monday that the British economy remained strong, his first public statement on the Brexit vote.
Shares in easyJet (>> easyJet plc) slumped 22.3 percent to a three-year low after it issued a third-quarter profit warning. British Airways owner IAG (>> International Consolidated Airlns Grp SA) fell 15.9 percent, also after Goldman Sachs cut its shares to "neutral".
"A vote by Britain to leave the EU can hardly help a company like easyJet, particularly seeing as the fall in the pound will put Britons off traveling overseas. Rain, strikes and the impact of the EU referendum have all damaged profits," said Nicholas Hyett, equity analyst at Hargreaves Lansdown.
Housebuilders also fell sharply, with Taylor Wimpey (>> Taylor Wimpey plc), Persimmon (>> Persimmon plc) and Barratt Developments (>> Barratt Developments Plc) all down 13.8 to 19.4 percent.
(Additional reporting by Kit Rees)
By Atul Prakash
Stocks treated in this article : Persimmon plc
, Taylor Wimpey plc
, Berkeley Group Holdings PLC
, Fresnillo Plc
, International Consolidated Airlns Grp SA
, Barratt Developments Plc
, Barclays PLC
, Randgold Resources Limited
, easyJet plc
, Royal Bank of Scotland Group plc
, Foxtons Group PLC
, Shawbrook Group PLC