The stake was increased to almost 30 per cent for 270 million US dollars.
The deal marks the third significant acquisition by Atlas Mara, set up last year by Diamond and Africa-based entrepreneur Ashish Thakkar, as it seeks to build the firm into Africa's leading bank. It raised 300 million US dollars last month to add to its acquisition war chest.
Atlas Mara said on Friday it was buying the additional 20.9 per cent stake from Asset Management Corporation of Nigeria (Amcon). Reuters reported on Thursday Atlas Mara was in talks to buy the UBN stake.
(WATCH VIDEO: Bob Diamond's Atlas Mara to buy BancABC in 1st Africa purchase)
UBN has 340 branches across Nigeria and had about 6.3 billion US dollars of assets, 3.1 billion US dollars in deposits and 1.3 billion US dollars in equity at the end of June. Atlas Mara said it purchased the stake at about book value.
UBN was established as Colonial Bank in 1917, and from 1925 until the 1970s was owned by Barclays, the British bank that Diamond led before being ousted under a cloud two years ago. UBN's market capitalisation is about 850 million US dollars.
"This is a very significant acquisition ... we will have a significant stake in a key Nigerian bank and we will also have established strategic market positions in three of Africa's leading economic communities: the Southern Africa Development Community, the East Africa Community and Economic Community of West African States," Diamond said in a statement.
(READ MORE: Ex-Barclays boss raises $325 mln with new African venture)
Previous deals have given Atlas Mara a platform in several countries including Botswana, Mozambique and Tanzania.
It said in a prospectus published last month it was considering buying a minority stake in a bank in Nigeria, which is sub-Saharan Africa's largest economy and one of its most attractive and fast-growing markets for banking.
Diamond is one of the world's best-known bankers after spearheading the growth of Barclays' investment bank before being forced from his job as CEO in 2012 by UK regulators after the bank was fined for attempted rigging of Libor interest rates.
His plans in Africa could put him in direct competition with Barclays, which has had a presence there since the 1920s and is one of the biggest international banks on the continent.
UBN was known as Barclays Bank CDO (Dominion, Colonial and Overseas) when it was bought by Barclays, and became Barclays Bank of Nigeria in 1969 after Nigeria's independence, according to the bank's website.