Air Carrier Captain reported an altitude deviation during approach due to low altimeter pressure setting.

Narrative

IMC; Pilot in Command; Pilot Flying [on] arrival; getting vectors for Runway XX; weather 800/3 WIND 320/16G26; Altimeter 999 MB. 5000 ft.; flaps 5; 200 KTS. ATC says ' cleared direct ZZZZZ; descend 3000 ft. cleared RNAV XX approach. Transition Level is 4500 ft. being close in to ZZZZZ on autopilot; Pilot Flying wanted FLCH to 3000 quickly so as to engage LVSAFE process ASAP. When prompted Altimeters; at Transition Level of 4500; by the time all altimeters set going from STD to 999 MB instantly lost approximately 800 ft.; do to transiting to LOW pressure aircraft was slightly below 3000 Autopilot didn't capture altitude selected above it. Auto throttles did not wake up slowed to 180 KTS; until recovery had to be initiated manually at 2740 with power and autopilot disconnected. Autopilot was re-selected at 3000 ft. and the approach was accomplished uneventfully. A safety representative called me and was asked to file company report.The Transition Level was known to the crew and we were prepared for the transition. What was not prepared for the instant loss of 1000 due to the very low altimeter setting; in a good descent rate put the aircraft below the selected altitude. The autopilot did not capture; an attempt on the MCP was made to change pitch mode and reacquire the selected altitude of 3000; and no autopilot response was met with a manual pilot intervention at 2740. All taken place after 10 hour all-nighter; IMC; and both pilots less than 100 hours in type; however familiar with ZZZZ in other Aircraft and seats. I recommend a published company procedure for this eventuality and crew awareness brief; so as to not be surprised by it. Lesser experienced crews might have gotten into real trouble. An easy to read conversion chart on altitude differences from flight ops on the briefing guide might be in order.