The Dow Jones Industrial Average has closed down by 1,175 points in the biggest one day fall since the financial crisis.
The leading US stock market index closed down 4.6% at 24,345.75.
It is the worst drop in points since September 2008 when a plan to rescue the US banking industry was rejected.
The decline extended losses on Friday, when strong wage growth data raised the prospect of accelerated interest rate rises.
Monday’s sell-off surpassed a 777.68 points drop on the Dow Jones on 29 September 2008 when Congress rebuffed a $700bn bank bailout plan following the collapse of US investment bank Lehman Brothers earlier that month.
The decline in the Dow was closely followed by the wider S&P 500 stock index, down 3.8% and the technology-heavy Nasdaq, down 3.7%.
London’s main share index, the FTSE 100, closed down 1.46% while earlier, the biggest markets in Asia fell between 1% and 2.5%.
The decline followed months of market increases, which had fuelled concerns that share prices were over valued.
The Dow’s dramatic fall marks a turnaround from January, when it raced past the 25,000 and 26,000 point milestones in less than a month.
David Madden, market analyst at CMC Markets, said: “Equity traders were enjoying a bullish run recently, and the jolt from the major decline in the US last Friday has triggered a worldwide round of profit taking.”
The Dow Jones rose more than 25% in 2017 – a year which was also unusual for its lack of sharp moves.
“There is going to be more volatility this year, ” Andrew Wilson chief executive of Goldman Sachs Asset Management, told the BBC.
“We are in a cycle where central banks are reducing the amount of bonds they are buying and some central banks putting up interest rates,” he said.
Strong wage gains reported on Friday provided a catalyst for the most recent losses, as investors saw it as a sign that inflation and interest rates might move faster than previously anticipated.
On Friday there was a hefty 4% loss for shares in Apple, which had been one of the markets’ star performers in recent years.
That selling came despite a solid trading update from the company.