House prices fell by 3.2 per cent over the past month as sellers cut property values in a rush to sell before last week's Home Information Pack (HIP) deadline, Rightmove said today.
The property website's December index showed that average asking prices declined by £7,590 to £232,396.
December is a traditionally poor month for prices, but Rightmove said the fall was compounded by the "HIP effect".
The extension of HIP rules to cover one and two bedroom properties on Friday added an extra 1.1% to the fall and brought "further confusion at a sensitive time for the property market", according to the group.
It said London properties suffered in particular as the capital saw a surge of cheaper-than-average one or two bedroom properties come onto the market.
The cost of property in London fell by 6.8 per cent in the last month and Rightmove said this would have been reduced to 4.5 per cent without the impact of the HIP deadline.
Its data revealed that this time last year, 38 per cent of properties coming to market across the UK had two or fewer bedrooms, but the figure soared to 48 per cent in the week beginning December 2.
Miles Shipside, commercial director of Rightmove, said: "New listings are very low at this time of year so the artificial wave of 'low-end sellers' has really distorted the average prices of new properties coming onto the market."
However, he added: "A substantial element of the fall reflects genuinely tough market conditions and many sellers who have listed this month have priced below the market to try and sell."
While house prices often dip in December, the drop highlights a weakening market nationwide.
The Royal Institution of Chartered Surveyors said last week that house prices in the UK fell for the fourth month in a row in November, with 58 per cent of its members reporting a drop in prices over the previous three months.
Government figures also out last week showed that the average price of a flat fell by 0.7 per cent during October, with the cost of all types of property edging ahead by just 0.1 per cent.
Mr Shipside said the market was entering "unchartered territory" as 2008 approached, with the credit crunch showing no signs of abating.
He said: "In the current downturn, the problem is the property market's increased dependence on mortgage funding raised from the log-jammed wholesale money markets rather than from savings deposits.
"This means that buyers will face limited availability of mortgages at attractive rates."
But he added the market was likely to see stagnation next year rather than a crash.