The French CAC and German DAX both closed over 2.5 percent lower, while London's FTSE ended around 1.8 percent lower.
Armed Australian police stormed a cafe in central Sydney bringing a 16 hour siege to a close.The gunman has been identified as self-styled sheikh whose website is known for its extreme political views.
Read MoreLive blog: Hostages held in Sydney cafe siege
Brent crude futures turned negative in late afternoon trade and U.S. crude oil extended losses, falling back below $60.
Oil stocks gave up earlier gains on Monday, following on heaving selling seen last week. Oil companies BG Group and BP both fell around 2 percent in late trading, dragging the FTSE 100 lower. Royal Dutch Shell and Tullow Oil also both traded around 1 percent.
U.S. stocks turned lower on Monday, extending the prior week's drubbing, as the price of oil continued to fall. Equities offered muted reaction to a gauge of home-builder sentiment falling a point in December after a large jump last month.
A Federal Reserve report had industrial production rebounding in November, after a Fed measure of manufacturing in the New York region dropped in December.