TOKYO, Oct 23 (Reuters) - Japan's Nikkei share average closed below the psychologically important 31,000 level on Monday as events in the Middle East kept investors on edge, sending a gauge of volatility spiking to a one-year high.

The Nikkei slid 0.83% to close the day at 30,999.55. It had earlier sunk to a two-week low of 30,974.26, but sellers piled back in during the final two minutes of trading.

Of the Nikkei's 225 components, 175 fell versus 48 that rose, with two flat.

A Nikkei volatility index spiked as high as 23.87, a level not seen since Oct. 28.

The broader Topix declined 0.75%.

"Concerns about a possible worsening of Middle East tensions will continue to be a weight on the Japanese stock market," said Maki Sawada, a strategist at Nomura Securities.

Risks rose over the weekend that the Israel-Hamas war could mushroom into a wider conflict, with Washington warning of a significant risk to U.S. interests in the region and announcing a new deployment of advanced air defences.

However, ongoing diplomatic efforts saw aid convoys start to arrive in Gaza, while Hamas's release of two American hostages buoyed hopes for the release of others.

Crude oil continued to climb down from multi-week highs, which made resource shares the Nikkei's worst performers on Monday.

Pacific Metals was the biggest percentage decliner, dropping 4.83%. Refiner ENEOS sank 3.01%.

Among the Tokyo Stock Exchange's 33 industry groups, oil and coal producers led losses by dropping 2.79%. Mining was next, down 2.48%, followed by a 2.22% slide for iron and steel companies.

Chip-related shares also underperformed, tracking U.S. peers as long-term Treasury yields at 16-year highs dimmed the outlook for so-called growth stocks.

Advantest dropped 2.98% and Renesas Electronics sank 2.69%.

Japan's Mothers index of start-ups slumped 3.33%. (Reporting by Kevin Buckland; Editing by Subhranshu Sahu and Nivedita Bhattacharjee)