Shortly before half time against the Gunners, the winger needed to be replaced by Roberto Firmino after challenging for possession with Thomas Partey.
Liverpool went on to lose by a 3-2 scoreline, Jurgen Klopp left frustrated by the decision to award Arsenal a match-winning penalty during the second half.
However, the German was equally disappointed with the injuries sustained by Diaz and Trent Alexander-Arnold, who needed to be substituted at half time with an ankle injury.
Speaking at his post-match press conference, Klopp said: "Lucho we had to change before [half-time]. [It's] something with the knee, not good. He will have a scan and then we will know more. I have no idea about the extent and then on top of that Trent is bad as well with the ankle.
"[He] twisted the ankle, not good. Trent never, in seven years, went off if he could have played on. He was in too much pain, it started swelling immediately, so we will have to see."
Diaz was later seen to be leaving the Emirates Stadium on crutches with his knee strapped up, the 25-year-old seemingly ruled out of action for the foreseeable future.
According to Football Insider, there are concerns behind the scenes that Diaz faces the prospect of months on the sidelines.
Although Liverpool are only due to play fixtures for the next five weeks, Diaz is regarded as Colombia's key man for the upcoming World Cup, which starts on November 20.
A scan on Diaz's injury is expected to take place on Monday or Tuesday, with both Klopp and national team boss Nestor Lorenzo both waiting for news on the issue.
Despite Liverpool's inconsistency in the Premier League and Champions League, Diaz has been one of Klopp's most influential performers with four goals and two assists in all competitions.
Those contributions have been spread across half of his 10 appearances in total, the most recent coming on Sunday as he provided the assist for Darwin Nunez's equaliser.
Liverpool still have 10 fixtures to play before the World Cup, including the encounter against Manchester City on Sunday, with Premier League action then resuming on Boxing Day.