The political collapse in Italy has dragged the European markets into the red, nullifying a positive start to trading on Tuesday.
The FTSE 100 closed 64.65 points lower at 7,125 at the end of trading.
Traders were spooked after Italian premier Giuseppe Conte announced his resignation, blaming his rebellious and ambitious deputy prime minister Matteo Salvini for his decision to end his 14-month-old populist government.
Connor Campbell, financial analyst at Spreadex, said: “The re-emergence of the political collapse in Italy as another crisis for investors to fret over turned a muted-to-positive day of trading into something more troubling.
“Though not as intimately engrossed in Italian politics, the FTSE ended up being Tuesday’s worst performing major index.”
David Madden, market analyst at CMC Markets UK, added: “The Italian political news isn’t a shock, but nonetheless it chips away at investor confidence.”
The key European markets slumped on the back of the political upheaval in the third-largest economy in the Eurozone, which could result in an election later this year.
The German Dax decreased by 0.55%, while the French Cac fell by 0.5%.
The Dow Jones moved a touch lower as the US markets appeared nervous due to the ongoing uncertainty surrounding the global economy.
Sterling reversed its midday losses as the currency appeared to be hopeful regarding Angela Merkel’s comments about finding a “practical” solution to the backstop.
The pound was 0.17% up at 1.214 versus the US dollar, and up 0.05% against the euro at 1.095.
In stocks, BHP saw shares fall after it warned that global trade tensions and the rise of nationalism could threaten returns in the mining sector.
However, the world’s biggest mining firm declared a bumper dividend after it posted its largest annual profit for five years, due to strong commodity prices and cost reductions.
Shares in BHP moved 46.6p lower to 1,734.8p at the close of trading.
Supermarket giant Sainsbury’s led the FTSE 100 risers for the second consecutive day after it fared better than its ‘Big Four’ grocery rivals in the latest Kantar market share figures.
Sainsbury’s showed the smallest dip in the cohort of 0.6%, driven by higher levels of promotion which helped boost sales of branded goods.
Shares in the company closed 5.55p higher at 193.9p on Tuesday.
Housebuilder Persimmon closed slightly lower after it posted a dip in profits after its efforts to improve quality slowed down the number of properties being sold.
Persimmon shares fell by 15.5p to 1,846.5p at the end of the day.
Barclays closed lower after activist investor Edward Bramson said he is still pushing to overhaul the bank, despite failing in his bid for a seat on the company board in May.
Barclays shares closed down 2.12p at 138.48p.
The price of oil moved lower as old concerns about the state of the global economy returned. The price of a barrel of Brent crude oil slipped by 0.2% to 59.6 US dollars.
The biggest risers on the FTSE 100 were Sainsbury’s, up 5.55p at 193.9p, Prudential, up 13p at 1,412p, Ocado, up 10.5p at 1,214.5p, and Rolls-Royce, up 6.2p at 769p.
The biggest fallers on the index were Kingfisher, down 6.2p at 188p, United Utilities, down 21.8p at 775.6p, BT Group, down 4.54p at 162.84p, and BHP, down 46.6p at 1,734.8p.