The penalty agreed with US, UK and Swiss regulators is more than three times the $450m (£277m) fine levied on Barclays in June, also for rigging the Libor benchmark rate used to price financial contracts around the globe.
UBS admitted to one count of fraud relating to the manipulation of benchmark interest rates, including the Yen Libor.
It will pay £160m to the UK authorities, CHF59m to the Swiss watchdog and $1.2bn to US regulators.
The bank also said the fines would widen its fourth-quarter net loss.
The fine comes as the Swiss bank is reeling from a $2.3bn rogue trading scandal and thousands of job cuts.