The move from open pit operation to underground mining will extend the life of Argyle mine until at least 2020.
According to Rio Tinto, the mine, which will use new block caving technology, is the first of its kind in Western Australia. It is expected to produce 20 million carats annually.
Rio Tinto diamonds and minerals chief executive Alan Davies said: "The new Argyle underground mine has allowed us to extend the life of this iconic asset for Rio Tinto and Western Australia.
"I am proud that we can continue our contribution to local employment and the economic development of the East Kimberley region, as we have over the past quarter of a century."
The Argyle mine, which produced nearly 800 million carats of rough diamonds over the last 25 years, is considered to be one of the major contributors to the East Kimberley economy.
It also produced a small but consistent supply some of the world's rarest pink diamonds.
Meanwhile, Rio Tinto said it may consider selling individual mines from its diamond mine business.
Davies told Bloomberg that the company's board would make a final decision on a whole or partial sale based on shareholder value.
Image: Argyle mine produced nearly 800 million carats of rough diamonds over the last 25 years. Photo: file image.