The pan-European FTSEurofirst 300 index and the euro zone's blue-chip Euro STOXX index both fell 2 per cent. Germany's DAX declined 1.4 per cent, while Britain's FTSE 100 weakened by 1.6 per cent.
The People's Bank of China (PBOC) again surprised markets by setting the official midpoint rate on the yuan, also known as the renminbi (RMB), at 6.5646 per dollar, the lowest since March 2011.
Stock markets in China, which is the world's second-biggest economy and the leading global consumer of metals, were suspended for the rest of the day less than half an hour after opening as a new circuit-breaking mechanism was tripped for the second time this week.
Investors have expressed fears that the yuan's rapid depreciation could mean China's economy is even weaker than had been imagined.
"The extent of the slowdown in China is certainly a worry. Investor sentiment is very fragile at the moment," said Terry Torrison, managing director at Monaco-based McLaren Securities.
© Thomson Reuters 2016