Traders were spooked also by a report that US President Donald Trump was being investigated for possible obstruction of justice, analysts said.
Mining companies were among the biggest fallers, with Anglo American shares crashing nearly seven percent in London.
"The European markets all pulled back this morning, with the latest oil-decline putting pressure on the commodity sector," said Spreadex analyst Connor Campbell.
London's FTSE 100, down almost 1.0 percent nearing midday, took a knock along with the pound also from weak British retail sales data, traders said.
Markets were awaiting an update from the Bank of England, widely expected to keep its main interest rate at a record-low 0.25 percent for a while longer with Britain's economy starting to cool after holding up well following last year's vote in favour of Brexit.
On Wednesday meanwhile, the Federal Reserve raised its benchmark interest rate by a quarter point to 1.0-1.25 percent.
The US central bank said it expected to lift borrowing costs for a third time this year, brushing aside weaker inflation and consumption data in recent weeks.
"The Fed was unequivocally hawkish," said AxiTrader chief market strategist Greg McKenna.
It plans also to suck cash out of the financial system by scaling back the bonds on its balance sheet.
Oil prices meanwhile steadied Thursday after slumping three percent overnight on data showing a smaller-than-forecast drop in US stockpiles -- and after the International Energy Agency warned that global output would increase faster than demand next year on rising US production.
The news followed the OPEC cartel's warning that higher US output was hurting its drive to address a long-running supply glut.
Both main crude contracts extended losses in Thursday's Asian trading hours before steadying.
Markets were given a jolt also by a Washington Post story saying top intelligence officials would be questioned over allegations Trump tried to get the FBI to back away from a probe into former national security adviser Michael Flynn.
The news comes as special prosecutor Robert Mueller looks into allegations of collusion between Trump's campaign and Russia to sway the outcome of last year's presidential election.
The report added to concerns the tycoon's planned big-spending, tax-cutting, deregulating agenda -- which helped fuel a months-long global shares rally from November -- could flounder.
Traders were sent scurrying last month when sacked FBI chief James Comey also said Trump had urged him to lay off Flynn. The White House has denied all the claims.
The crisis engulfing the president, and the uncertainty that has brought, has kept investors on edge for months.