Traders also digested official data showing that the British economy grew by a downwardly-revised 0.9 percent in the third quarter of the year.
In midday deals, London’s benchmark FTSE 100 index of leading shares fell 0.62 percent to 5,921.51 points, Frankfurt’s DAX 30 index dipped 0.55 percent to 7,630.56 points and the Paris CAC 40 slid 0.38 percent to 3,652.83.
Milan’s FTSE Mib index meanwhile dived 0.88 percent to 16,255.66 points before a key Italian budget vote that is widely expected to trigger the resignation of Prime Minister Mario Monti.
The European single currency edged down to $1.3210, compared with $1.3241 late in New York on Thursday.
“The world hasn’t ended — but hopes for a deal to avert the US fiscal cliff before the year-end may soon come to an end after the latest developments in Washington,” said ETX Capital strategist Ishaq Siddiqi.
“US Republicans yesterday failed to vote on a tax-bill drummed up by top Republican House Speaker John Boehner.
“Failure to vote on the plan was a major blow for Boehner and the Republicans alike, as it indicates members in his party have little confidence in him.”
Global share prices have fallen on fresh concerns over the fiscal cliff of automatic tax hikes and spending cuts that are due to kick in on January 1 — and could send the world’s biggest economy spinning back into recession.
On Thursday, Boehner scrapped a vote on a bill that would have extended tax cuts for all Americans earning less than $1 million even if a wider deal could not be struck.
The move, which he described as his “Plan B”, was dropped because he did not have enough support. Boehner said his party would recess until after Christmas.
The measure had been blasted by President Barack Obama’s Democrats as a diversionary tactic that would never have passed in the Senate, where they hold a majority.
Now both parties must come up with a budget that will cut the country’s deficit with less painful measures before the start of January.
In reaction in Asian trade, Hong Kong shares dropped 0.68 percent, Tokyo fell 0.99 percent, Seoul shed 0.95 percent and Sydney was 0.23 percent lower.
“Markets have dropped sharply in Europe this morning … sparked by stuttering fiscal cliff talks,” said CMC Markets sales trader Matt Basi.
“After months of concern that Republicans and Democrats would struggle to find a middle ground in negotiations, traders rushed to take risk off the table as it transpired that the Republicans couldn’t find a compromise with the Republicans.”
Wall Street ended in positive territory on Thursday, however, lifted by fresh data further indicating the US economy is getting back on its feet.
In company news on Friday, British defence giant BAE Systems announced a £2.5-billion ($4.1-billion, 3.1-billion-euro) deal to supply 12 Eurofighter Typhoon fighter aircraft and eight Hawk trainer jets to Oman.
However, BAE shares declined by 1.93 percent to 341.30 pence on the London market.
British insurer Aviva saw its share price drop 0.57 percent to 381.80 pence, despite agreeing to sell its US life insurance business for $1.8 billion as part of a strategic overhaul.