Outlets in the South American country reported the Liverpool forward's parents had been kidnapped in Colombia on Saturday.
According to Colombia's president, Gustavo Petro, Diaz's mother has been rescued and returned to safety.
There had been conflicting reports surrounding his dad's situation, but there had been no confirmation he had been rescued.
Now, the Official account of the Director General of the National Police of Colombia has offered $200million pesos (£39,983) to anyone who can help them find Diaz's father, who is also named Luis Diaz.
The Director General posted a video making the announcement on the official X account on Sunday.
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The caption of the post said: "By decision of the Ministry of National Defence and the Minister of National Defence of Colombia a reward of up to $200 million pesos is offered for information that allows the rescue of Mr. Luis Manuel Diaz and the capture of those responsible for this criminal action."
A poster detailing the reward and showing a picture of the Diaz Sr's photo was also posted.
"Kidnapped," it read. "Guajira Police Department. Up to $200,000 million reward help us locate him."
Liverpool released a statement on Sunday confirming the club were 'aware of an ongoing situation' concerning their player's parents, stating they were prioritising the star's welfare.
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Diaz missed Liverpool's 3-0 win over Nottingham Forest on Sunday.
Ahead of the match, manager Jurgen Klopp said: "We had to obviously make a late change because of the private situation involving Luis Diaz. It's a worrying situation for all of us and it was a pretty tough night.
"I have never had that before. It's a new experience I never needed."