Osborne: right decision for UK
Mr Osborne said the had been informed of the decision Monday night by the bank's chairman, Marcus Agius.
Mr Osborne added: "I think and I hope that it is the first step towards a new culture of responsibility in British banking."
The Chancellor acknowledged that the Government had had "conversations" with the bank but denied ministers were responsible for Mr Diamond falling on his sword.
"I was very clear that it was not the job of the Chancellor of the Exchequer or the Prime Minister or anyone else in the Government to make a decision about who ran, in effect, a private company, Barclays," he said.
"This is ultimately a decision for the board of Barclays. Obviously we have had conversations over the last few days with Barclays Bank. But this is, as I say, ultimately a decision for their board."
The Chancellor said British banks are "broken" but there was now an opportunity to "fix" what has gone wrong in the industry. He added: "I think he (Mr Diamond) has clearly taken the view that Barclays has a better future without him than with him."
Mr Osborne insisted the Government was not dodging a full public inquiry into banking because it was afraid where it might lead, claiming Labour had more to fear. He said: "I think the people who would be most afraid of where any inquiry goes will be the people who were in charge at the time. No-one more than me would like to see Ed Balls in the dock."
He added: "I think once Labour lose the vote today, as I suspect they will, I think they will see sense and join in with an inquiry which I want to command all-party support."