The Dubai Financial Market Index tumbled 7.4 percent to close at 3,594.95 points, a 10-month low.
“It’s a panic sell-off across all Gulf markets which are highly sensitive to developments in the oil market,” said Mohammad Zidan, chief market strategist at Kuwait-based brokerage firm Orbex.
“The fear that Gulf states will start posting a budget deficit has dented investors’ confidence,” he told AFP.
At one point earlier this year the Dubai index was up 60 percent from the start of 2013, but it has since given up almost all of the gains.
Zidan said he expected the slump to continue next week but at a much slower rate.
Market leader Emaar Properties plummeted 9.1 percent and construction giant Arabtec lost 7.8 percent.
The neighboring Abu Dhabi Securities Exchange, which normally moves in a tight range, shed 4.4 percent to finish the day at 4,381.16 points.
Losses were led by the banking, financial and real estate sectors.
The Qatar Exchange, the second-largest in the Arab world after Saudi Arabia, dropped 4.3 percent to 11,805.11 points, declining below the 12,000-point psychological level.
The Kuwait Stock Market closed down 1.5 percent at 6,463.76 points — a level last seen in March 2013.
The tiny Muscat Stock Exchange shed 4.15 percent to end below the 6,000-point mark while the Bahrain Stock Exchange was down 0.9 percent.
The Saudi Tadawul All-Shares Index, which slumped more than three percent in early trade, rebounded strongly to close down 0.2 percent at 8,393.92 points, the lowest in more than a year.
World oil prices rebounded Thursday, after falling sharply to fresh five-year lows a day earlier when OPEC cut its forecast for demand in 2015 and US stockpiles saw a surprise surge.
US benchmark West Texas Intermediate (WTI) for January delivery rose 44 cents to $61.38, having hit a July 2009 low of $60.43 on Wednesday.
Brent crude for January was up 60 cents at $64.84 in late Thursday morning trade in London, having hit a five-year trough of $63.56 the day before.
The Organization of Petroleum Exporting Countries said demand for the 12-nation organization’s crude would fall to 28.92 million barrels a day next year. The figure is the lowest since 2003 and at least one million barrels fewer than it is producing now.