Diamond’s decision was welcomed by Chancellor George Osborne.
“This is the first step towards a new culture of responsibility in British banking,” said Chancellor Osborne.
Chairman Marcus Agius has already announced his resignation and will take over the running of the bank until a replacement is found.
“I am deeply disappointed that the impression created by the events announced last week about what Barclays and its people stand for could not be further from the truth,” Mr. Diamond said in a statement.
The decision of Mr. Diamond comes after Barclays was fined USD 450 million for attempting to manipulate Libor, lowering them to hide their risk level during financial crisis.
After Agius’s resignation, politicians and shareholders continued to call for Mr Diamond to step down.
Prime Minister David Cameron, who has launched an inquiry into banking standards, has described the rigging of Libor rates as “a scandal”.
The Serious Fraud Office is also considering whether to bring criminal charges.
Mr Diamond, one of the UK’s highest paid chief executives, was head of Barclays Capital, its investment bank division, when his staff were trying to manipulate the key inter-bank rates.
“He maintains that he didn’t know what was going on,” says BBC business editor Robert Peston. “He feels he was hounded out.”