It becomes the second major bank to be fined over Libor after Barclays was ordered to pay $450m to UK and US authorities in the summer.
Regulators worldwide are investigating a number of banks for rigging Libor.
Libor tracks the average rate at which the major international banks based in London lend to each other.
UBS said it had agreed to pay fines to regulators in three different countries:
$1.2bn (£740m) in combined fines to the US Department of Justice and the Commodities Futures Trading Commission£160m to the UK's Financial Services Authority59m Swiss Francs (£40m) to the Swiss Financial Market Supervisory AuthorityThe bank has also agreed to admit to committing wire fraud through its Tokyo office in the case of manipulating Libor rates for loans denominated in Japanese yen, among others.
UBS said the fines were likely to result in the bank recording a loss in its financial accounts for the last three months of the year.
The Swiss lender acknowledged its personnel had manipulated the borrowing rates it submitted, that were then used to calculate the Libor rate - a benchmark interest rate that is used to fix payments on hundreds of billions of dollars-worth of financial contracts - in order to make money on their trades.
Significantly, UBS said its traders had colluded with their counterparts at other banks and brokerages.
Besides UBS and Barclays, about a dozen other major banks are involved in setting Libor rates each day across a range of currencies, and most of them are understood to still be under investigation.
Like Barclays, UBS also accepted that management had also told staff to submit inappropriately low estimated borrowing costs for the bank to the committee at the British Bankers' Association responsible for setting Libor, in order to give a false impression of the bank's ability to borrow cheaply during the financial crisis.