One of Britain's biggest property funds was forced to shut its doors to withdrawals yesterday after the slump in commercial prices triggered panic selling by small investors.

The move prompted fears of a Northern Rock-style run on billions of pounds invested in once high-flying funds which many savers have seen as a safe haven for their pensions.

Scottish Equitable said yesterday that 129,000 small investors in its £2bn property fund will not be able to access their money for up to a year, although payments relating to regular income already being paid, retirements and death claims will not be affected.

It said the fund, invested in London office blocks and shopping centres across Britain, no longer had sufficient cash reserves to meet demands from investors wanting to withdraw their money. Its "buffer fund" was down to 1% of its total assets, instead of the usual 10-15%.

Commercial property values, especially in the City of London office market, have dived amid fears of a recession brought on by the global credit crunch.

In late December another insurer, Friends Provident, halted access to its £1.2bn property fund and last night speculation was growing that Scottish Widows may be on the verge of restricting customer withdrawals on some of its funds. The insurer said last night: "We are looking at all the options, but no decisions have been taken."

Scottish Equitable's parent group, Aegon UK, is due to announce the closure of its fund today. It said last night: "Aegon UK has decided to take this step to protect investors following a significant level of customer withdrawals from the UK property fund market." It blamed "worldwide phenomena relating to concerns over the US sub-prime mortgage market fallout, rising interest rates and talk of recession".

The Financial Services Authority said it was closely monitoring the situation and had been informed by Aegon of the decision to halt withdrawals.

The crisis in Britain's commercial property market is now worse than at any time since the early 1990s, when Olympia & York, the company that began the Canary Wharf office development in London, went into administration.

The credit crunch has raised borrowing costs, making many property deals no longer attractive. Financial institutions hit by the fallout are already beginning to cut staff, reducing demand in the City office market in which most of the UK's property funds are invested. A downturn in consumer spending growth is also making retail shopping developments less attractive to investors.

Small investors have put about £15bn into property unit trusts - £5bn pouring in during 2006 and early 2007 alone. Billions more are invested through pension funds held by millions of company employees. Investors bought into promises of rich returns after a decade in which returns far outstripped gains on shares or bonds.

But the downturn in values since the middle of 2007 has been savage. Shares in British Land, the UK's leading property company, have fallen by nearly half, and most funds are showing falls of between 20% and 40%. But investors stampeding for the exit are now finding that they cannot access their cash.

The crux of the problem is that the funds are invested in buildings which can take months to sell, and therefore cannot produce the cash to pay out money to small investors if they all want it back at the same time.

Usually the funds hold a cash "buffer" of 10-15% of total assets to meet withdrawals. But Scottish Equitable said yesterday that the cash buffer in the £2bn fund had fallen to just £80m following a wave of redemptions, giving it little choice but to suspend the fund. The only alternative was a "fire sale" of its holdings which could leave investors even worse off.

It emerged yesterday that staff at some of the property managers have been informing key clients in advance that a fund is heading for suspension. The FSA said that such trading may fall foul of its rules regarding treating customers fairly.

Financial advisers continue to recommend that investors take their cash out of the funds that remain open. Jason Hemmings of Albannach Financial Management in Edinburgh said: "There are lots of rumours going about that other providers may be considering following Friends Provident and Aegon."

The Aegon/Scottish Equitable property funds are managed by Morley Fund Management, which also runs the £4bn Norwich Union Property unit trust, the UK's biggest property fund. This week Norwich Union said the fund had fallen in value by a fifth over the year, but its cash buffer was at 6.4% after selling office blocks in London and Manchester worth £165m.

Aegon UK added that it believes the "underlying fundamentals of the asset class remain healthy".