The Scottish singer, whose hits included I Won't Let You Down, I Should Have Known Better and Hi Ho Silver passed away at his home in London, aged 64.
Born in Glasgow's East End, he was heavily influenced by the voices of Ray Charles and Otis Redding and joined his first band at the age of 14.
He later moved to London, where he formed the band Bandit and went on to sign to Clive Davis' Arista Records.
His family told the BBC they were "deeply shocked by his sudden death".
A family spokesman added: "He was a devoted family man who loved his wife Chrissy and his children Sarah and Lawrence, and the music that he continued to make.
"He dedicated a lot of time over recent years to the Cash for Kids charity appeal in Scotland with his friend Sir Tom Hunter and was still active and well respected on the music scene.
"He'll be much missed by all who knew him and everyone who loved his music and his unique voice and style."
Diamond later went to work in Los Angeles and on his return to London formed the band Ph.D with Tony Hymas and Simon Phillips.
The first single taken from Ph.D The Album, I Won't Let You Down went on to sell millions.
After Ph.D went their separate ways, the singer signed to A&M Records.
The single I Should Have Known Better from his 1984 solo album Double Crossed went straight to
No.1 and went on to be nominated for an Ivor Novello award.
