The duo slumped when it was revealed they were to be the subjects of investigations by the Serious Fraud Office.
Justice Secretary Chris Grayling asked for the probe after a review found the government had been paying over the odds for electronic tags supplied by the pair by tens of millions of pounds.
It follows last year’s Olympics scandal when G4S failed to summon enough security guards during the London Games.
Boss Nick Buckles survived an internal review but quit in May after a profit warning.
In a response to Grayling’s statement, the company called the Ministry of Justice an important customer and said it would act quickly to resolve the issue.
It has requested the full details of an audit by PricewaterhouseCoopers, but believes no allegations of “dishonesty or misconduct” are being aimed at the company.
Newly-installed CEO Ashley Almanza said: “G4S is committed to having close and open relationships with our customers and we strive to work in partnership for the mutual benefit of our organisations.
“We place the highest premium on customer service and integrity and therefore take very seriously the concerns expressed by the Ministry of Justice. We are determined to deal with these issues in a prompt and appropriate manner.”
In a statement, Serco said it was willing to repay any amount it owes and it was withdrawing from the re-tendering process for electronic tagging.
G4S fell 5.6% to 213p a share – its lowest price in four years – while Serco dropped 8% as its South Yorkshire prisons contract is now in jeopardy.
The two weighed on the FTSE 100 but a strong performance from miners propped up the index thanks to rising commodity prices.
The pressure eased on precious metals as silver miner Fresnillo (LON:FRES) topped the chart 12.7% higher, with Randgold (LON:RRS) and Anglo American (LON:AAL) also on the podium, up 7% and 5.4% respectively, and fellow giants Rio Tinto (LON:RIO) and BHP Billiton (LON:BLT) not far behind.
The resurgence from mining stocks helped the index climb 38 points or 0.6% to 6,543, as did Fed chairman Ben Bernanke, who claimed the US still needs money printing.
It shot up 20% as it revealed the Indian Supreme Court has instructed the country’s government to proceed with the tender sale of the historic Bharat Gold Mines.
After encouraging results from Weaju last month, Aureus said an 18 hole programme at Ndablama, 40 kilometres (km) away from New Liberty, had recorded multiple gold intercepts at shallow levels.
In an upbeat trading statement, the company revealed that the breakneck pace it had set in 2012 continued into 2013, with organic revenues up more than 30% year-on-year, meaning the company will meet the market’s expectations for first half sales and underlying earnings (EBITDA).
Also up today was IPSA Group (LON:IPSA), which rose 8.7%, Churchill Mining (LON:CHL) up 1.8%. Medusa Mining (LON:MML) meanwhile benefited from the kinder environment for gold, rising 14% to 100 pence a share.