European markets finished Monday's session deep in the red, as investor confidence took a knock from weak trading seen in markets overseas.

The pan-European Stoxx 600 tumbled 1.12 percent by the close, with all sectors in the region failing to post gains by the end of trade.

On the bourses front, the FTSE 100 slipped 1.16 percent, while the French CAC 40 fell 1.10 percent and the German DAX dropped 1.36 percent. All major markets in peripheral Europe closed in the red.

Europe's banking index was among the worst sectoral performers, finishing down 1.37 percent amid renewed fears over Italy's budget plans. The FTSE MIB index slipped 2.43 percent by the market close, with government bond yields hitting fresh highs during trade.

The EU reiterated concerns over Italy's budget plans over the weekend, saying it is worried Rome's plans breach what it asked the country to do earlier this summer. In response, Italy said it would "not retreat" from its current spending plans. The news appeared to ratchet up the pressure on the country's already fragile banking sector, with Unicredit, Ubi Banca, Mediobanca and Banco BPM all closing the day down 3.5 percent or more each.

Looking at individual stocks, Norway's Norsk Hydro held onto its crown as the STOXX 600's top performer by the close, after the aluminum firm got a key permit to help it restart its Alunorte refinery at half-capacity. Shares of the Oslo-listed stock rose 3.9 percent on the news.

Tele2 finished up 1.6 percent, off its highs, after the company confirmed that the European Commission had approved its merger with Com Hem Holding. Europe's biggest losers were William Demant and WireCard, which both posted sharp losses, closing down 10.6 percent and 12 percent respectively.