LONDON - Barclays CEO Bob Diamond quit with immediate effect on Tuesday over a rate-rigging scandal, becoming the highest-profile victim so far in a probe that spans a dozen major banks across the world.

Britain's third-largest bank said that outgoing chairman Marcus Agius - who himself announced his departure a day earlier - would lead the search for a new CEO.

"The external pressure placed on Barclays has reached a level that risks damaging the franchise - I cannot let that happen," Mr Diamond said in a statement.

Mr Agius announced his resignation on Monday in the scandal over traders manipulating the London interbank offered rate (Libor), used worldwide as a benchmark for prices on about $350-trillion of financial products. He said, however, he would stay in office as long as the search for a new chairman continued.

Barclays was fined $453m by US and British authorities, becoming the first bank to settle in an investigation that is looking at more than a dozen others, including Citigroup, UBS and Royal Bank of Scotland (RBS).

On Monday, the UK government launched an inquiry into the scandal, saying a "culture that flourished in the age of irresponsibility" among bankers had to end.

Mr Agius's resignation on Monday did not take the heat off Mr Diamond, who ran Barclays' investment banking arm when the rate rigging took place.

"The buck in Barclays stops with Bob Diamond, and it is Bob Diamond who must accept responsibility," John Mann - an opposition Labour member of a parliamentary committee that later this week will question Mr Agius and Mr Diamond - told Sky News.

Anger with the culture of bankers in London crossed the political divide, with Conservative Chancellor of the Exchequer George Osborne outlining the parliamentary inquiry.

"The behaviour of some in the financial services has damaged the reputation of an industry that employs hundreds of thousands of people and is vital to the economic prosperity of the country," Mr Osborne told parliament. "It's time to deal with the culture that flourished in the age of irresponsibility and hold those who allowed it to do so to account."

Barclays has admitted that some of its traders tried to manipulate Libor.

In a letter sent to staff on Monday, Mr Diamond said: "No one is more sorry, disappointed and angry about these events than I am."

The bank had let down customers, clients, shareholders, regulators and the communities, and it was reviewing those responsible, he said.

"We have the full range of tools at our disposal, from clawing back compensation to asking people to leave the bank," the letter said.

FULL INQUIRY

Prime Minister David Cameron has called the scandal "extremely serious" and on Monday demanded action "right across the board".

The cross-party inquiry, due to start within days and to report by the end of the year, will have free rein to call witnesses under oath from the worlds of finance and politics, and will influence the government's reform of the financial sector.

It could result in bank bosses being held to account by law for the actions of rogue staff, while a separate and independent review of the way interest rates are set and regulated in financial markets will also feed into new banking legislation.

Britain's Serious Fraud Office, a government agency, said it would decide within a month whether to press criminal charges against any of the banks under investigation.

The record fine of $453m imposed on Barclays showed the financial industry needed a fundamental rethink, the Financial Services Authority (FSA) said.

"Perhaps the reaction to the penalty imposed last week on Barclays will be a watershed moment, the point when the industry realises that it also has to rise to the challenge and to recognise that things have to change," said Tracey McDermott, acting head of enforcement at the FSA.

The affair comes at a time when banks - already under fire for their role in the financial crisis - are facing a new wave of public outrage over a systems outage at RBS last month and evidence of mis-selling financial products.

Barclays is the first bank to settle in an investigation that is looking at more than a dozen other banks, including Citigroup, UBS and RBS.

HSBC said that as a bank that contributed to setting the Libor interest rate, it was providing information to authorities, but the FSA said it was not investigating the bank.

Legislators are likely to quiz Mr Agius and Mr Diamond this week on what the Bank of England and other regulators knew about the rate-rigging. Mr Diamond will appear before the parliamentary committee on Wednesday and Mr Agius on Thursday.

Reuters