We report our identification of the optical afterglow and host galaxy of the short-duration gammaray burst sGRB 160821B. The spectroscopic redshift of the host is z = 0.162, making it one of the lowest redshift sGRBs identified by Swift. Our intensive follow-up campaign using a range of groundbased facilities as well as HST, XMM-Newton and Swift, shows evidence for a late-time excess of optical and near-infrared emission in addition to a complex afterglow. The afterglow light-curve at X-ray frequencies reveals a narrow jet, θ j ∼ 1.9 +0.10 −0.03 deg, that is refreshed at > 1 day post-burst by a slower outflow with significantly more energy than the initial outflow that produced the main GRB. Observations of the 5 GHz radio afterglow shows a reverse shock into a mildly magnetised shell. The optical and near-infrared excess is fainter than AT2017gfo associated with GW170817, and is well explained by a kilonova with dynamic ejecta mass M dyn = (1.0 ± 0.6) × 10 −3 M and a secular Corresponding author: G. P. Lamb gpl6@leicester.ac.uk arXiv:1905.02159v3 [astro-ph.HE] 5 Aug 2019 2 Lamb et al.(postmerger) ejecta mass with M pm = (1.0 ± 0.6) × 10 −2 M , consistent with a binary neutron star merger resulting in a short-lived massive neutron star. This optical and near-infrared dataset provides the best-sampled kilonova light-curve without a gravitational wave trigger to date.