"Ramon Diaz has become River Plate's new coach. This Thursday afternoon, the club's president (Daniel Passarella) verbally agreed Ramon Diaz's arrival," the record 33-times league champions told their official website.
The 53-year-old had previous spells in charge between 1995-99 and 2001/02, but this is likely to be the hardest since River, back in the first division after their traumatic relegation last year, do not have the gifted squad they had then.
Under Diaz, the club's most successful coach, River won five league titles, the 1996 Copa Libertadores and 1997 South American Supercup with a squad that included Uruguayan Enzo Francescoli and Argentines Andres D'Alessandro, Pablo Aimar and Javier Saviola.
Passarella and Diaz, team mates at River and for Argentina in the late 1970s and early 1980s, reached agreement a day after coach Matias Almeyda left due to lack of support from the board.
Many of the club's supporters would have liked Diaz to take charge when River were struggling to avoid relegation in 2010/11 but he does not have a close relationship with Passarella who appeared determined not to give in to fan pressure last season.
Diaz could also have returned when River were promoted in June but Passarella preferred to stick with Almeyda, who had steered them to the Primera B Nacional second division title after being given his first coaching job days after relegation.
However, Almeyda has been out of his depth, tinkering with line-ups and tactics, and failed to find a settled team in his 60 matches in charge.
Former Inter Milan, Monaco and Argentina striker Diaz, River's fifth coach during Passarella's presidency since December 2009, will attend Sunday's home match against title chasing Lanus at the Monumental but will not take charge until next week.
"(Diaz), who enjoys enormous affection from Millo fans, will sign his contract on Friday and take charge of his first match against San Martin," said River using an abbreviation of the club's nickname Millonarios.
River travel to San Juan to face lowly San Martin on the last day of the championship, first of two in the season, on December 9.
Reserve team coach Gustavo Zapata will be in charge against Lanus, who are two points behind leaders Velez Sarsfield with two matches to go in the Inicial championship. River are in mi-table with 23 points from 17 matches.
Diaz has also won titles as a player with River, Inter Milan and Monaco and as a coach with San Lorenzo.