The blue-chip FTSE 100 equity index, which rose 0.3 percent on Friday on relief that Scotland voted against breaking away from the UK, was down 55.99 points, or 0.8 percent, at 6,781.93 points by 1423 GMT (03:23 p.m. BST).

The FTSE 350 Mining Index dropped 3.2 percent on concerns that a flash manufacturing PMI reading from China, the world's top metals consumer, could come in below the 50 point level on Tuesday, indicating that manufacturing activity is contracting.

An 11 percent fall at Tesco took the most points off the FTSE 100, after the firm said it had called in its lawyers as well as new accountants to investigate an error in its UK food business that forced it to cut its first-half profit outlook by 250 million pounds ($408.35 million).

Shares in Tesco rivals Sainsbury's and Morrisons both fell more than 2 percent.

Traders said Tesco's admission would add more pressure to a company that has lost market share this year to discount rivals.

"Tesco used to be the most innovative store in the grocery market but given that Aldi and Lidl have taken its customers by cutting the price of their products without compromising too much on quality, Tesco has been extremely slow to respond to those changes. Today's news is another disaster for the company," said AvaTrade chief market analyst Naeem Aslam.

HSBC cut its target price for Tesco to 175 pence from 195 pence and kept its "underweight" rating, noting that this accounting issue relates to one area, the UK food business, and raises the spectre there could be more issues across the group.

Shares in Tesco are currently trading at 11-year lows at around 204 pence, having dropped almost 40 percent this year and some 30 percent in the last three months alone.

If Tesco falls another 20 percent, George Godber, manager of the CF Miton UK Value Opportunities Fund, would consider buying its shares, though "it would have to go in hand with the chief exec saying 'this is what I want to do to fix the business'".

A decline in the shares of major miners such as Anglo American and Glencore, also pegged back the FTSE. Glencore's shares were also impacted after smaller rival London Mining said the two firms were embroiled in a contract dispute.

Some traders remained optimistic that the FTSE 100 would gradually rise towards the end of the year to challenge 7,000 points, which would mark a record high.

The FTSE has been supported over the course of this year by Britain's economic recovery and a pick-up in corporate takeover activity.

"I would be simply amazed if the FTSE failed to test 7,000 points," said InterTrader chief market strategist Steve Ruffley.

(Editing by Sonya Hepinstall)

By Tricia Wright and Sudip Kar-Gupta