The news came as it emerged that a clutch of Western investment banks have been stung for at least $100m (pounds 61m) after one of Russia's largest banks, SBS-AGRO, failed to meet margin calls because of mounting losses in the dollar-denominated debt market.
Traders said blue-chip banks with big positions in the market include Goldman Sachs, Salomon Smith Barney and SBC Warburg.
The authorities said they would allow the rouble to fall by as much as 50 per cent against the dollar, that there would be a 90-day moratorium on certain foreign debt repayments and trading in the government debt market would be suspended.
Standard & Poor's, the leading credit agency, slashed its Russian long- term foreign currency rating from B- to CCC.
George Soros, the New York-based financier whose intervention last week played a decisive role in the latest turn of events, said last night: "The government has bought itself a little time." He called the devaluation "necessary, courageous and timely," adding that the government "had stopped the collapse".
The news - which came despite repeated official assurances last week that there would be no devaluation - hit investor confidence throughout the emerging markets.
Russian foreign currency bonds plunged and other emerging market debt also fell. Most Russian banks immediately raised their price for dollars to 7.50 or 8.00 roubles - above the new official floor of 9.5 roubles to dollar.
The Russian stock market opened 15 per cent lower, but pared back some of its earlier losses to close down 4.85 per cent at 109.43 in thin trading.
Russia's central bank has been bailing out SBS-AGRO as part of a lifeboat operation to keep the top 12 or so Russian banks afloat and avoid a wholesale meltdown in the financial sector. Other top 20 banks believed to be on the critical list include Inkombank and Rossikskiy Creditbank.
Analysts say that as many as 400 banks could be at risk following yesterday's devaluation. However, the biggest fear is that one of the top 20 really big banks may go under.
SBC Warburg, which is to axe 80 staff at its Moscow offshoot Warburg Brunswick, said last night it was unable to comment on its exposure to Russia ahead of half year results due out later this month. However, analysts put its total exposure including its loan book at around pounds 200m. Salomon Smith Barney refused to comment.
Emerging markets were hit worldwide, as were emerging currencies. in particular the Czech crown and Mexican peso. Analysts said the Russian devaluation re-ignited fears about the ability of China, Hong Kong and Brazil to hold their currency pegs.
The German electronically-traded Xetra DAX index closed down 0.76 per cent at 5,432.03 after dipping more than 3 per cent earlier in the day. Analysts expressed concerns about the exposure of German companies - particularly banks - to Russia, and the mark hit a five-week low against the dollar of 1.81 marks before making up ground in late trading.
The FTSE 100 had a jittery start, but closed up 12.2 points or 0.22 per cent at 5,467.2. Bond markets were the main beneficiaries, and both US Treasury and German bond yields touched record lows in morning trade. The Dow was trading up 79 points at 8,504.3 early yesterday afternoon.
Overnight in Japan, the Nikkei tumbled 2.18 per cent, 329 points, to 14,794.66, closing below the 15,000 barrier for the first time in two months.
In a letter in yesterday's Financial Times, the chief executive of the Hong Kong monetary authority defended the decision to intervene in the markets. Joseph Yam said the authority had "reason to believe" there had been currency manipulation by investors.