* FTSEurofirst down more than 6 pct
* Worst 1-day loss since just after Lehman collapse in 2008
* Euro STOXX Volatility Index hits new highs
* FTSEurofirst lost over 1 trln euros since start of month
* Europe bourses in 2015
* Asset performance in 2015
Trading screens flashed red across the region as stock markets in Frankfurt and Paris fell more than 5 per cent, while Athens' bourse - already down sharply due to Greece's debt problems - slumped around 10 per cent.
The pan-European FTSEurofirst 300 was down 6.4 per cent going into the close of the trading session, wiping off more than 500 billion euros ($582.55 billion) from the index's tota market capitalisation.
The FTSEurofirst was on course for its worst one-day per centage fall since it slumped more than 7 per cent in October 2008, just after the demise of U.S. bank Lehman Brothers. It was also on course for its worst monthly loss since 2002.
It also sank to its lowest level since January, having lost more than a trillion euros in market value since the start of the month as China's devaluation of the yuan stoked fears of global economic deflation.
Chinese stocks plunged more than 8 per cent on Monday, in their biggest one-day loss since the height of the global financial crisis in 2007, after Beijing held back expected policy support at the weekend following last week's 11 per cent slide.
"We have reduced our exposure to emerging markets equities, and in Europe to exporters such as carmakers. We believe there is a panic-selling mode at the moment, and we could see further falls," said Francois Savary, chief strategist at Swiss bank Reyl.
The STOXX 600 Basic Resources Index, whose constituents are mostly mining stocks, and the energy sector fell 10 per cent and 8.8 per cent respectively, as commodities slumped to multi-year lows, with China being one of the world's biggest users of metals and oil.
Shares in banks and asset managers also fell sharply, while the Euro STOXX Volatility Index rose 14 points to its highest level since late 2011 - more evidence of investor unease.
Nevertheless, some investors and strategists said the sell-off may have been overdone.
"Momentum may carry developed markets lower - the US in particular has risen so strongly and to such a high valuation that a correction was due," said Mark Evans, fund manager at Taube Hodson Stonex Partners.
"European markets have not re-rated to anything like the same extent and remain attractively valued in our view - though they too may sag a bit further," he added.
Vincent Juvyns, global market strategist at JP Morgan Asset Management, and Reyl's Savary also both expected the broader global economy to eventually recover from the Chinese sell-off, pointing to signs of growth in the United States and Europe.
However, strategists at Societe Generale warned that their basket of European stocks with strong business ties to China, which includes carmakers and luxury goods companies, might come under more selling pressure in the near term.
Additional reporting by Alexandre Boksenbaum-Granier and Alistair Smout