BARCLAYS chief executive Bob Diamond resigned with immediate effect today in the wake of the rate-rigging scandal.
The American banker, who has faced mounting calls to step down, said: "The external pressure placed on Barclays has reached a level that risks damaging the franchise."
He added: "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."
The move comes after Barclays was fined £290 million by UK and US regulators for manipulating the Libor, the rate at which banks lend to each other.
Chairman Marcus Agius, who announced his intention to resign over the affair yesterday, will lead the search for a new chief executive immediately, Barclays said.
Mr Diamond, who was once dubbed the ``unacceptable face of banking'' by Lord Mandelson, showed no sign of stepping down yesterday as he pledged to see an internal review into Barclays' practices through to implementation.
The 60-year-old, who joined the bank 16 years ago, said: "My motivation has always been to do what I believed to be in the best interests of Barclays. No decision over that period was as hard as the one that I make now to stand down as chief executive."
He went on: "I know that each and every one of the people at Barclays works hard every day to serve our customers and clients. That is how we support economic growth and the communities in which we live and work."
Mr Diamond confirmed he would still appear before the Treasury Select Committee tomorrow to answer questions over the rate-fixing allegations which ultimately led to the Government yesterday launching a parliamentary probe into banking culture.
He added: "I leave behind an extraordinarily talented management team that I know is well placed to help the business emerge from this difficult period as one of the leaders in the global banking industry."
Mr Agius, who will become full-time chairman until he steps down at an unspecified date, said: ``Bob Diamond has made an enormous contribution to Barclays over the last 16 years of distinguished service to the group, building Barclays Investment Bank into one of the leading global investment banks in the world. As chief executive he has led the bank superbly.''
As he resigned yesterday, Mr Agius announced an internal review into the bank’s "flawed" practices.
Mr Diamond, who has courted controversy for his hefty pay packages, which in 2011 alone totalled close to £18 million, told employees in a letter yesterday: "I am committed to ensuring the recommendations of this review are implemented in full."
The memo emerged after the Serious Fraud Office said it hoped to decide within a month on whether a criminal prosecution in relation to the rate-fixing was appropriate.
But despite his attempts to rally staff, Mr Diamond faced increasing calls from politicians, financial campaigners and former Barclays directors to follow Mr Agius and step down.
Labour leader Ed Miliband yesterday said the resignation of Mr Agius from Barclays was not enough, and repeated his call for Mr Diamond to step down.
He added: "I want to see criminal sanctions against those who broke the law."
The Bank of England was also drawn into the affair after it emerged that staff mistakenly thought they were instructed by the central bank to lie in their rate submissions.
The Financial Services Authority’s report said there had been a misunderstanding arising from a conversation between Bank Deputy Governor Paul Tucker, a favourite for the Governor role, and an unidentified senior Barclays manager on October 29 2008.
Mark Field, Conservative MP for Cities of London and Westminster, told Sky News it was a ``sensible and pragmatic'' decision for Mr Diamond to step down.
He said: "The real risk was that he would continue to be the story and this was likely to run and run for some considerable time.
"It’s important to state that this is not just affecting Barclays."
Barclays shares fluctuated wildly after the announcement as investors weighed up the shock decision.
Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said: "The revolving doors at Barclays are working overtime."
He went on: "Discussions at the Treasury Select Committee should throw some light on the internal turmoil at the bank, while it remains to be seen whether Barclays will eventually end up with some credit in being the first to hold its hand up over the Libor investigations."
Lib Dem peer Lord Oakeshott, who led calls for Mr Diamond to resign in the wake of the scandal, said: ``Bob Diamond's departure is a great day for democracy.
"He is the symbol of the gambling and greed we must root out of our banking system.
"Now the top priority is to catch the criminals, break off the casinos from the basic banks and make them lend.
"We must never again let the rich and powerful in the City or the media get their hands round the windpipe of Government."
Labour leader Ed Miliband said: ``This was necessary and right. It was clear Bob Diamond was not the man to lead the change that Barclays needed.
"But this is about more than one man - this is about the culture and practices of the entire banking system, which is why we need an independent, open, judge-led public inquiry."