The FTSE 100 fell 0.7% after dropping as much as 1.7% through the day. It shed more than 2% in November.
Most sectors in the FTSE 100 retreated. But mining stocks staged a late recovery, helping the index pare some losses as they tracked a jump in iron ore prices. [IRONORE/]
Prime Minister Boris Johnson said another lockdown was unlikely in light of the new variant, but would keep everything under review.
The domestically focussed mid-cap index fell 1.0%.
Global stock markets slumped after comments from vaccine maker Moderna's head that existing COVID-19 vaccines were unlikely to be as effective against the Omicron variant as they have been against the Delta version.
Drugmaker AstraZeneca, which also makes COVID-19 vaccines, fell 1.1%.
British airline easyJet slid 1.2% after reporting some softening of trading in its first quarter on COVID-19 outbreaks and the discovery of the Omicron variant. Broader travel and leisure stocks also sank.
"It almost feels like minus 10% for travel stocks is the new black," said Max Kettner, multi-asset strategist at HSBC.
"Sentiment around reopening stocks has hit absolutely rock bottom now and it's not just been a function of last Friday, but it has been a function of two or three months already."
Meanwhile, data showed costs were rising at the fastest rate in over 20 years for firms in Britain's services sector, putting the Bank of England in a tough spot as they face rising inflation and economic risks at the same time.
The internationally focussed FTSE 100 has underperformed its domestic counterpart so far this year, gaining 8.3% compared with the 9.6% rise in the FTSE 250 index.
(Reporting by Bansari Mayur Kamdar in Bengaluru; Editing by Subhranshu Sahu Uttaresh.V and Keith Weir)
By Bansari Mayur Kamdar and Ambar Warrick