The delay to the vote which had been due on Tuesday opened a range of options for Europe's No.2 economy, including a disorderly Brexit, another referendum on European Union membership, or a last minute renegotiation of May's deal.

Some internationally exposed stocks such as British American Tobacco and GlaxoSmithKline were lifted by the pound falling to 20-month lows but their gains were more than offset by a broad sell-off led by companies more exposed to the domestic economy.

"The only known is that the uncertainty has increased and we are faced with more volatility for sterling and UK assets," said Neil Wilson, Chief Market Analyst at Markets.com.

The FTSE 100 <.FTSE> top share index fell 0.8 percent, while the more domestically focussed FTSE 250 <.FTMC> index tumbled 2 percent, sliding back to its lowest level since December 2016.

Financials were the biggest drag on the FTSE with domestically focussed banks Royal Bank of Scotland and Lloyds falling 2.1 and 3 percent respectively. They underperformed banks with broader international presence such as HSBC and Barclays, both down less than 1 percent.

Housebuilders, which are also highly sensitive to Brexit developments, were down sharply as tension built and analysts at Peel Hunt cut their ratings and price targets.

Shares in Berkeley, Persimmon, Taylor Wimpey and Barratt Developments fell between 3.5 and 5.1 percent, all extending earlier losses after May delayed the vote in parliament.

Utilities Centrica and SSE, down 4.6 and 3.6 percent, were also weighed down by political uncertainty .

Analysts say the prospect of a government led by the opposition Labour party should May's Conservative administration collapse and a consequent threat of a nationalisation of utilities would put further pressure on the sector.

Royal Mail, recently demoted from the FTSE 100, also fell 2.3 percent.

"Remember that Labour had previously threatened to nationalise utilities and Royal Mail, so investors may be starting to price in a higher likelihood of a general election in the near future and for Labour to have a strengthening hand," said Russ Mould, investment director at AJ Bell.

Traders said Centrica was also hurt after the Sunday Telegraph reported that the owner of Britain's largest energy supplier British Gas could struggle to pay dividends.

Shares in pension provider Just Group rallied 19 percent, scoring its best day ever, following a policy announcement from the Bank of England's regulatory body that proposed changes in rules over lifetime mortgages.

"This appears a good announcement for Just Group and removes a considerable amount of the uncertainty faced by shareholders," said Numis in a note.

Among the few other gainers were shares in precious metal miner Randgold, which was lifted 5.5 percent as investors sought refuge in safe haven assets such as gold.

Shares in Interserve plunged 53 percent to fresh record lows after the embattled British outsourcer announced a rescue plan that envisaged converting much of its debt into new shares, potentially handing control of the company to its creditors.

(Reporting by Danilo Masoni; Editing by Richard Balmforth and David Stamp)

By Danilo Masoni