If the results are confirmed, it will be a huge embarrassment for May, who in April called a snap election three years ahead of schedule in the hope of gaining an even greater majority of seats to give her a stronger mandate for upcoming Brexit negotiations.
Polls then pointed to a landslide win for her, which analysts said would strengthen her hand to negotiate a Brexit deal with the European Union without being pressured by the Eurosceptic wing of her own party.
CMC Markets' chief market analyst Michael Hewson said: "So much for the opinion polls giving the Conservatives a seven point lead, tonight's exit poll has seen the pound plunge on the currency markets, as the prospect of a "hung parliament" throws the start of Brexit talks into doubt".
May experienced a gradual slide during the campaign period, in which a wide gap between the Conservatives and Labour narrowed.
"People have said they have had quite enough of austerity politics", he said, repeating his campaign promises to push for better funding for health and education.
But her lead had gradually shrunk over the course of the campaign, during which she backtracked on a major social care proposal, opted not to take part in a high-profile TV debate with her opponents, and faced questions over her record on security after Britain was hit by two Islamist militant attacks that killed 30 people.
"And we said no, and we meant it, and we put forward a popular manifesto with a leader of the party who has stood the most extraordinary personal attacks, and actually has shown if anyone was strong and stable, it was him".
Craig Oliver told Sky News Thursday night that if the poll is accurate "there will be deep and lasting shock" in party headquarters as Prime Minister Theresa May's decision to call an early election seems to have backfired.
Voters are choosing all 650 members of the House of Commons after Prime Minister Theresa May called a snap election, three years ahead of schedule, at a time when her party was well ahead in the polls.
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The first exit poll for the 2017 United Kingdom general election is predicting losses for Theresa May's Conservatives and gains for Jeremy Corbyn's Labour party.
Britain needed a period of stability and that she would take responsibility for delivering it if she won the most seats, said Mrs May at the count in Maidenhead where she had just been re-elected in the country's general election.
Sterling fell by more than two cents against the U.S. dollar.
Labour would increase their share from 229 to 266 seats, pointing to a hung parliament - yet another upset in a turbulent year since the European Union referendum in June 2016.
May herself had said during her campaign: "It's a fact that if we lose just six seats, we will lose our majority and Jeremy Corbyn will become prime minister", predicting that the Scottish Nationalists and Liberal Democrats would back him.
In Battersea, a London constituency, a Conservative junior finance minister lost her seat to Labour.
Amid intermittent rain across the country, Britons have been voting in an election in which security has dominated the final days of the campaign.
The polls were conducted after the deadly attack by Islamist militants in London on Saturday.
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