We report our identification of the optical afterglow and host galaxy of the short-duration gamma-ray 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 ground-based 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 , \theta _ { j } \sim 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 \pm 0.6 ) \times 10 ^ { -3 } M _ { \odot } and a secular ( postmerger ) ejecta mass with M _ { pm } = ( 1.0 \pm 0.6 ) \times 10 ^ { -2 } M _ { \odot } , 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 .