The renewed uncertainty hit banks while commodities were also dented by disappointing manufacturing data out of China.
Meanwhile the Office for National Statistics said that that UK gross domestic product increased by 0.5 per cent between July and September.
That represents an improvement on the second quarter, when economic growth was just 0.1 per cent.
However, the Purchasing Managers' Index (PMI) survey released earlier showed that manufacturers saw the sharpest monthly rate of decline since June 2009 in October.
The FTSEurofirst 300 index of top European shares was down 2.8 per cent, with Societe Generale down 12 per cent and Credit Agricole 11 per cent.
That was mirrored in London with Barclays down 8.5 per cent and RBS 7.7 per cent — the two biggest fallers on the blue chip index.
The falls were triggered by Greece's prime minister, George Papandreou, threatening the Eurozone's debt solution plans - which include writing off 50 per cent of Greek debt — with the shock referendum announcement.
Sentiment was also hit by data out of China showing that big manufacturers were being hit by a slowdown in demand from Europe and the US, who are grappling to get their economies back on track.
That hit miners who rely on demand with Xstrata the biggest faller in the sector on the FTSE 100, down six per cent. Meanwhile Essar Energy took a 5.4 per cent hit while Legal and General dropped 5.3 per cent after saying that its sales were flat in a trading update.
G4S was the only significant riser, up 2.8 per cent after it announced that it had abandoned a £5.2bn bid for Danish security firm ISS in order to head off a shareholder revolt over the deal.
On the FTSE 250 Homeserve, which saw its shares plunge 30 per cent yesterday after saying that it had launched a probe after questions were raised over its sales methods — nudged up by just over two per cent.
A raft of US data is due out later with October's ISM report and September construction spending numbers on the agenda.
In other UK data house prices increased year-on-year for the first time in six months in October, with a 0.8 per cent rise, the Nationwide said.