The pan-European STOXX 600 ended 0.6% lower, with the travel and leisure index down 4.4% to a one-month low.
The Times reported that Germany was considering a ban on British travellers to the European Union, regardless of their vaccination status, because of the highly contagious, widespread Delta variant of the coronavirus.
Hong Kong also announced a ban on all passenger flights from the UK, starting this week, due to similar concerns.
International Consolidated Airlines, Easyjet, Wizz Air and Ryanair fell between 4% and 6%.
"Despite a number of popular tourist spots now being on offer to British holiday makers thanks to the government's updated green list, it is precarious and it won't mean a great deal if Germany gets its way and UK tourists are banned entry to the whole EU because of a concern over the Delta variant," said Danni Hewson, financial analyst at AJ Bell.
Germany's DAX index ended 0.3% lower, while British blue-chip stocks shed 0.9%.
Energy stocks fell 2.3%, with oil prices dropping as a spike in Asian infections of the Delta variant threatened to dent demand. [O/R]
Crude markets were also rattled by anticipation ahead of a major OPEC+ meeting this week, where the cartel could possibly increase production.
The benchmark STOXX 600 traded below record highs hit just over a week ago as global financial markets turned choppy following signals the U.S. Federal Reserve could start raising interest rates sooner than expected.
Renewed concerns over the coronavirus have also kept markets off record highs.
Graphics: Europe subsectors in June -
Technology stocks rose 0.4%, and were among the few gainers for the day as jitters over the Delta variant saw investors flood back into pandemic-resistant sectors.
All eyes this week will be on June inflation readings as well as business activity data from across the euro zone.
In company news, Burberry Group's shares tumbled 8.7% to the bottom of the STOXX 600 as Chief Executive Officer Marco Gobbetti resigned to take the top job at Italian luxury group Salvatore Ferragamo. Ferragamo shares fell 2.7%.
Nokia topped the STOXX 600 with a 5.8% jump, after Goldman Sachs upgraded the stock's rating on potential in the wireless equipment market.
(Reporting by Sagarika Jaisinghani and Ambar Warrick in Bengaluru; Editing by Shounak Dasgupta, Uttaresh.V and Jonathan Oatis)
By Sagarika Jaisinghani and Ambar Warrick