The FTSE 100, which suffered its worst day this year in the last session, lost 0.7% to end the session below its 200-day moving average - seen as a technical support level - for the first time since late May.
A handful of strong corporate earnings from industrial firms capped losses on the mid-cap FTSE 250 <.FTMC>. The index closed 0.1% lower.
Engine maker Rolls-Royce slumped 7%, its biggest one-day fall since 2015, after it raised cost estimates to tackle problems relating to its Trent 1000 engines, which have caused airlines to ground Boeing 787s while repairs are carried out.
Further weighing on the main index were oil majors BP and Shell, as well as internationally-exposed stocks on the back of a slight recovery in the pound.
Washington on Monday formally tagged China a currency manipulator for the first time since 1994, responding to Beijing allowing the yuan to weaken past 7 per dollar for the first time in a decade and signalling a deepening of the conflict between the countries, the world's two biggest economies.
"We've had such heavy selling I wouldn't be surprised to see some bump-ups as bulls test the water for a dip," Markets.com analyst Neil Wilson said.
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Until last week's renewed escalation of the trade tensions, the FTSE 100 had recovered from a slump in May to post back-to-back monthly gains, helped by a fall in the pound that benefits many of its internationally-focussed constituents.
The latest trade friction has erased all of the index's July gains and has placed the index on course for its steepest monthly fall in four years.
"We should expect things to get worse before they get better. There is likely a bit more pain ahead, but I feel the market will eventually turn around," Wilson said.
On the FTSE 250, industrial group Rotork jumped 8% after half-year results that Jefferies called "very robust", while engineering firm Meggitt advanced 3% after it raised its annual organic revenue growth forecast.
Fashion retailer Boohoo added 4.1% after sealing a deal to buy the online businesses of fashion chains Karen Millen and Coast.
Fertilizer maker Sirius Minerals, however, slumped nearly 29% to a more than four-year low after it suspended a planned $500 million bond sale central to the funding of its Polyhalite mining project in the north-east of England.
(Reporting by Shashwat Awasthi and Muvija M; Additional reporting by Sangameswaran S in Bengaluru; Editing by Anil D'Silva and Frances Kerry)
By Shashwat Awasthi and Muvija M