Update: The pound has fallen to a 20-month low against the dollar after prime minister Theresa May abandoned a parliamentary vote on her Brexit deal, admitting it would have been rejected 'by a significant margin'.
The pound slumped 1.3% to $1.256 against the dollar, as a slide that began earlier in the day on speculation the vote would be shelved gathered pace with May's confirmation.
May said the vote, which was set to take place tomorrow, would be deferred and not take place 'at this time' but gave no details on future timing.
The FTSE 100, initially supported by the falling pound's boost to overseas earnings, slid into the red, closing the day 57 points, or 0.8%, lower at 6,722.
Stocks exposed to the UK domestic economy were the worst hit, with house builders falling heavily.
The FTSE 250, which is more exposed to the UK domestic economy than the blue-chip index, fell 2%.
Thomas Cook (TCG) tumbled 14% to 26.6p amid the continuing fallout from last month's profit warning.
House builder Crest Nicholson (CRST) was down 8.4% at 309.4p while peer Galliford Try (GFRD) was down 7.9% at 597p and Bellway (BWY) dropped 5.9% to £24.19.
(12:35) Pound falls on reports May to call off vote
The pound has fallen to an 18-month low against the dollar after Bloomberg reported Prime Minister Theresa May would call off tomorrow's parliamentary vote on her Brexit deal.
Sterling dropped below the $1.27 mark to trade at $1.267, down 0.5% on the day.
Bloomberg said that, faced with an overwhelming revolt from MPs against her Brexit deal, the prime minister was looking to reschedule the vote in a bid for more time to secure concessions from the EU.
May is set to make a statement to MPs at 3:30 p.m.
'The negative reaction in the markets is more likely due to what it means for her position rather than the failure to win the vote,' said David Cheetham, chief market analyst at XTB.
'It now seems increasingly likely that a long-touted leadership challenge will ensue.'
The pound's fall helped the FTSE 100 wipe out its losses for the day, boosting the value of companies' overseas earnings.
The UK blue-chip index was trading at 6,778, flat on the day but up from a low of 6,744 earlier in the session.
(10:37) FTSE dips ahead of Brexit vote
The FTSE 100 has dipped into the red while the pound has held steady against the dollar, as investors refrained from big bets ahead of tomorrow's parliamentary vote on prime minister Theresa May's Brexit deal.
The UK blue-chip index fell 28 points, or 0.4%, to 6,754 points, while the pound traded at $1.272 versus the dollar.
'Monday looks like the calm before the storm for the UK stock market,' said Russ Mould, investment director at AJ Bell.
'Investors are sitting on their hands until Tuesday's big Brexit showdown in parliament.'
'Labour had previously threatened to nationalise utilities and Royal Mail, so investors may be starting to price in a higher likelihood of a general election in the near future and for Labour to have a strengthening hand,' said Mould.
On the FTSE 250, shares in annuity provider Just Group (JUSTJ) surged 21.7% to 100p, as the latest proposals from the Prudential Regulation Authority for capital requirements associated with lifetime mortgages were less punitive than feared.
Thomas Cook (TCG) continued to fall, down 7.9% at 28.5p after last month's profit warning.
Photo-Me (PHTM) was down 11.1% at 94.6p after reporting a 20% fall in first-half profits.