When the market opened, shares in the company dropped by 16% to 425p, a fall of 78.5p.
This followed the report that like-for-like sales for the 13-week period ending December 29 were down by 2.2%. This breaks down as a 1.5% fall in food sales and a 3.2% fall in general merchandise.
It will further fuel fears that the economy is heading for a slowdown, with other retailers such as Next and electrical retailer DSG (owner of PC World and Currys) also reporting a difficult period.
While it was expected that clothing sales would suffer, the 1.5% fall in food sales, traditionally a strong performer for M&S, was bad news. The news comes a day after upmarket grocer Waitrose reported sales growth of more than 4% over Christmas.
In a trading statement today, Marks & Spencer's chief executive Sir Stuart Rose, who has just received his knighthood, said: "Market conditions became more challenging through November and December.
"We continued to drive footfall, and volume growth in general merchandise was strong at 5%. Price deflation was 6%, reflecting our continued focus on offering customers better values."
He said that the company expected the tough conditions to remain throughout 2008, but added that it was "well positioned with a strong product offer and better than ever value".
Sales from M&S website rose by 78.1% during the period.
M&S had kicked off Christmas in its now traditional style, with a big-budget, celebrity studded ad campaign. Created by Rainey Kelly Campbell Roalfe/Y&R, it featured the usual cast of supermodels, Twiggy, Erin O'Connor and so on, joined by Hollywood star Antonio Banderas.