Property asking prices in London fell 5% in November to knock £26,956 off the average home in a single month.
The surprise monthly fall cuts the average property price in the capital to £517,276, according to new research from property portal Rightmove.
And it marks a dramatic reversal from October, when the average property price in London rose £50,000 to £565,863, widely seen as "unsustainable" at the time.
Across England and Wales, asking prices dropped by 2.4% in November, falling £6,181 to an average of £246,237, Rightmove's research showed.
Yet they are still 4% higher than 12 months ago, the fastest increase since the financial crisis in 2007.
Rightmove said prices usually fall by around 3% in November ahead of the pre-Christmas slowdown. This year's slightly slower decline suggests the upturn in housing market activity has cushioned the seasonal drop.
Rightmove predicts a buoyant 2014.
House prices in the East Midlands grew at a faster annual rate than those in London in November. Asking prices in the East Midlands are 7.4% higher than they were a year ago, to an average £168,873.
But the average asking price for a property in London is still more than three times that in the East Midlands.
Asking prices in London are up 6.9% year-on-year.
Prices have increased across every region apart from the North since last year, Rightmove added. Prices in the North dipped by 0.5% annually to £141,426.
Rightmove said traffic to its website is up 30% on one year ago, a further sign of growing demand for property, while the stock of unsold homes has fallen from an average of 71 per estate agency branch one year ago to 67.
Miles Shipside, director of Rightmove, said: "Estate agents expect a more buoyant 2014 as they pick up early signs of an increase in buyer interest and demand, so this side of Christmas could be the time for eager buyers to hunt out keen sellers and do a deal.
"However, agents' challenges differ wildly depending on local market conditions.
"While some are really concerned about future sales because of a lack of fresh sellers, others report some sellers getting too brave too early on their asking price aspirations in less active parts of the country, potentially stifling a recovery before it has got going."
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