The FTSE is 156 points lower at 5388
Weak UK manufacturing data added to increased uncertainty over the eurozone's future and caused London's leading shares index to fall nearly 3%.
The FTSE 100 Index was 156.8 points lower at 5388.9 after Greek prime minister George Papandreou cast doubt over the future of the eurozone rescue deal as he announced shock plans to hold a referendum on the package.
Elsewhere, the Markit/CIPS purchasing managers' index revealed a decline in the manufacturing sector in October, fuelling fears of a double-dip recession and overshadowing better-than-expected GDP figures for the UK.
Meanwhile, security group G4S hit the top of the index as investors breathed a sigh of relief after the company abandoned its audacious £5.2 billion takeover bid for Danish cleaning firm ISS.
The dismal opening in Europe followed a weak session in Asia where fears over the viability of the three-pronged EU rescue deal and weak Chinese manufacturing data troubled investors.
EU leaders last week agreed with banks a 50% haircut on Greek debt and to boost the eurozone bailout fund to one trillion euros (£880 billion), which follows an earlier decision to shore up banks' finances.
However, Greek leader Mr Papandreou threw a spanner in the works when he announced his debt-strapped country will hold a vote next January on whether to accept the deal.
The banking sector was worst hit with Barclays falling 9% or 18.4p at 177.1p, Royal Bank of Scotland losing more than 6% or 1.5p at 22.7p and Lloyds banking Group dropping 6% or 1.9p at 30.5p.
Elsewhere, the China Federation of Logistics and Purchasing said its monthly purchasing managers index fell an unexpectedly large 0.8% to 50.4, just above the 50-level that signifies expansion.
The figures raised fears of a slowdown in Chinese demand and hit the FTSE 100's miners, including copper giant Antofagasta, which fell 75p at 1091p, and Anglo-Swiss firm Xstrata, which was off 75p at 970.9p.
