The Serious Fraud Office (SFO) will launch a criminal investigation into the manipulation of the benchmark lending rate.
According to a statement, director David Green QC has formally accepted the LIBOR matter for investigation.
The development follows reports last week that a lack of resources in the UK's lead anti-fraud agency would prevent an investigation from being carried out. However, the SFO has now confirmed a criminal investigation will go ahead.
Shares in Barclays collapsed last week after the bank was issued a fine of £290m for manipulating LIBOR rates by UK and US regulatory agencies, leading to chief executive officer Bob Diamond's (pictured) eventual resignation.
Although the Financial Services Authority (FSA) has conducted its own investigation into the LIBOR scandal, this was regulatory not criminal.
George Osborne said the FSA could not bring prosecutions under its criminal insider-trading powers because they did not extend to derivatives.
The move by the SFO echoes the Financial Bureau of Investigation's (FBI) recently announced investigation of traders at Barclays' London and New York offices.
By mid-afternoon today, shares in Barclays had fallen 3% to 163p. Its shares have lost over a third of their value compared to this time last year.
Has been cold-calling consumers
New shares admitted to London Stock Exchange
Slow and steady growth
Missed funding target by £240,000