Oil firm BP, valued on the London Stock Exchange at £130.3bn, is now worth more than the mobile phone firm, whose value has dropped to £127.8bn.
With its share standing at 198p at the close of trade in London, Vodafone shares have more than halved since the peak of the tech stock "bubble" which saw its stock hit a high of £3.99 on 6 March last year.
The last time Vodafone shares closed below £2 was on 1 January 1999.
The latest fall in its shares came amid increasing doubt that the company's proposed sale of an Italian business would go ahead as planned.
Vodafone said on Friday that Italian anti-trust authorities might place conditions on the 11bn euro ($10bn; £7bn) sale of Infostrada to Italy's state-contolled power utility Enel which would cause the prospective buyer to abandon the deal.
Industry sources said the authorities had intimated they would require Enel to surrender as much as 25% of its electricity production capacity as a condition for approving its purchase of Infostrada - a fixed-line telecoms operator.
Vodafone shares lost 4.2% in early trading in London, adding to last week's losses, to stand at 195.5p by 1200 GMT, before bouncing back slightly to close the day at 198p.
Good excuse
Analysts said that if the Infostrada deal fell through, depressed market conditions would mean Vodafone was highly unlikely to secure as good a price for the company as Enel had last October agreed to pay.
Enel shareholders might see any conditions imposed as a good excuse for backing out of an acquisition that looked expensive given current telecoms valuations, they said.
Analysts also said investor sentiment towards UK telecoms had been hit on Monday by Sunday newspaper reports quoting British Telecom chief executive Sir Peter Bonfield as saying the company had paid £10bn too much for third-generation mobile phone licences.
Many European mobile phone groups are struggling under the weight of debt built up acquiring the licences, which will allow operators to offer new services including high-speed internet access from mobile phones.
BT shares were down 3.3% at 580p at the close of business.
Enel has said it hopes to combine Infostrada with Wind, its domestic mobile phone joint venture with France Telecom's Orange.
Vodafone said the investigation into the Infostrada deal would be completed by 11 March, unless it was extended, while the sale agreement would complete on 28 February, unless the parties agreed otherwise.