Barclays chief executive Bob Diamond resigned with immediate effect today (Tuesday) 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 on Monday, 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 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 on Monday, 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: "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 had said the resignation of Mr Agius from Barclays was not enough and on Mopday 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.
Chancellor George Osborne welcomed the resignation of Mr Diamond, saying it was the "right decision" for the bank and for the country.
Mr Osborne said the had been informed of the decision on Sunday night by Mr Agius.
"He said the board had come to view that that was the right decision and Mr Diamond had come to that view," he told the BBC Radio 4 Today programme.
"But I think it is the right decision for Barclays, I think it is the right decision for the country."
?Next page: Barclays statement in full
Here is Barclays' statement on Bob Diamond's resignation in full:
"Barclays today announces the resignation of Bob Diamond as chief executive and a director of Barclays with immediate effect.
"Marcus Agius will become full-time chairman and will lead the search for a new chief executive.
"Marcus will chair the Barclays Executive Committee pending the appointment of a new chief executive and he will be supported in discharging these responsibilities by Sir Michael Rake, deputy chairman.
"The search for a new chief executive will commence immediately and will consider both internal and external candidates. The businesses will continue to be managed by the existing leadership teams."
Mr Diamond said: "I joined Barclays 16 years ago because I saw an opportunity to build a world-class investment banking business.
"Since then, I have had the privilege of working with some of the most talented, client-focused and diligent people that I have ever come across.
"We built world-class businesses together and added our own distinctive chapter to the long and proud history of Barclays. 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. The external pressure placed on Barclays has reached a level that risks damaging the franchise - I cannot let that happen.
"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.
"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.
"I look forward to fulfilling my obligation to contribute to the Treasury Committee's inquiries related to the settlements that Barclays announced last week without my leadership in question.
"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 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. I look forward to working closely with the chief executives of our businesses and the other members of the executive committee in leading Barclays world-class businesses in serving our customers and clients and delivering value for our shareholders."
? TIMELINE: BOB DIAMOND'S DOWNFALL
* Wednesday June 27:
The banking industry is engulfed in a fresh scandal after Barclays pays £290 million to settle claims that it used underhand tactics to try to rig financial markets.
The penalties from UK and US regulators, including a record £59.5 million fine from the Financial Services Authority (FSA), follow allegations it manipulated Libor and Euribor interbank lending, which govern the rates at which banks are prepared to lend to each other in the wholesale money markets.
In the depths of the financial crisis, Barclays gave false information about the interest rates it had to pay to borrow money in an effort to paint a false picture of its health to markets.
Chief executive Bob Diamond, who was in charge of Barclays Capital at the time the breaches occurred between 2005 and 2009, apologises and says he and three other key executives would waive their bonuses for this year.
* Thursday June 28:
After fining Barclays, the FSA is investigating several other lenders including HSBC and taxpayer-backed Royal Bank of Scotland.
Serious Fraud Office investigators are in talks with the FSA over the scandal while pressure is mounting on Mr Diamond to stand down.
* Friday June 29:
A fresh mis-selling scandal caps a nightmare week for the banking industry, as the FSA announces it has found "serious failings" in the sale of complex interest rate hedging products to some small and medium-sized businesses (SMEs).
It reaches agreement with Barclays, HSBC, Lloyds and RBS to provide appropriate compensation where mis-selling occurred.
* Saturday June 30:
An urgent independent review into the inter-bank lending rate is to be set up by the Government in the wake of the interest rigging scandal.
The review will consider the future operation of the Libor rate and the possibility of introducing criminal sanctions, a Treasury source says.
Mr Diamond is summoned to appear before the Treasury Select Committee next Wednesday.
* Sunday July 1:
Barclays Bank chairman Marcus Agius is reported to be on the brink of stepping down.
The development comes as Business Secretary Vince Cable backs calls for a criminal investigation into bankers involved in the affair.
* Monday July 2:
Mr Agius resigns.
* Tuesday July 3:
Mr Diamond announces he is stepping down with immediate effect.