The pound and shares in housebuilders and banks have fallen sharply after cabinet ministers Dominic Raab and Esther McVey quit over Prime Minister Theresa May's draft Brexit deal.
Royal Bank of Scotland sank 9%, with 7% falls for Persimmon, Taylor Wimpey and Barratt Developments.
Sterling fell 1.7% against the dollar and 1.9% against the euro.
The FTSE 100 index closed little moved, but the FTSE 250, which mainly comprises UK-focused firms, fell 1.6%.
Capita topped the fallers in the FTSE 250, plunging 14%, with Countryside Properties down 9%.
Why have shares tumbled?
Shares in companies that do most or all of their business in the UK reflected the continued political uncertainty, as members of the Conservative Party and opposition politicians voiced their scepticism over the draft deal.
"The market has taken a big red pen to stocks which are heavily exposed to the UK economy like the banks, retailers and housebuilders," said Laith Khalaf at Hargreaves Lansdown.
"These sectors were already under pressure, but the potential for an orderly Brexit to unravel in the next few days is causing further distress to be manifested in share prices."
The odds of a general election have just gone up and that means the possibility of a Corbyn government must have increased as well.
"Markets don't like the prospect of that because of Labour's intention to raise taxes on companies and nationalise large sections of the economy."
The higher chances of an election was one of the reasons behind RBS' steep fall, as the Labour Party has said it would nationalise the lender. However, shares in other banks also fell, as investors considered the threat to the economy and therefore to banks' balance sheets if the UK were to leave the EU without a deal.
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