Dibaba set a time of three minutes 54.11 seconds — the fastest in the world this year — in the same city where the Algerian Hassiba Boulmerka ran 3min 55.30sec on the way to winning the Olympic title in 1992.
Dibaba also trimmed over a second off her previous personal best, set indoors in Stockholm in February last year.
Her time of 3min 55.17sec in the Swedish capital remains the world indoor record, but the 24-year-old surpassed that with ease at the Estadi Joan Serrahima on Wednesday night.
She was level with Cuban athlete Yuneisy Santiusty around the 700-metre mark but burst clear to post the 9th-fastest time in history, and the quickest outdoor time since 1997.
Spain’s Solange Pereira was over 18 seconds adrift in second place.
Dibaba had only just set a 5000m personal best at the Diamond League meet in Paris last weekend where she ran 14min 15.41sec.
The world record and other quick times in the discipline were mainly run by Chinese athletes in the 1990s under the guidance of controversial coach Ma Junren.
Six of Junren’s athletes were dropped from China’s 27-strong team for failing dope tests ahead of the Sydney Olympics in 2000.
The world record is currently held by Qu Yunxia who ran 3min 50.46sec in 1993.