Diddy Drops $40 Mil On Sick House

Diddy is moving up the ranks of elite L.A. homeowners ... because TMZ has learned he just closed escrow on a $40 million estate in one of the most exclusive parts of the city.

The mogul now owns a European villa in Holmby Hills -- near where Michael Jackson died.

The estate has 8 bedrooms and 11 bathrooms. The main house is 17,000 square feet with a 3,000 square foot guesthouse. And, there's a separate spa house that has a steam room, massage room and beauty salon.

Of course the lagoon-style pool has a grotto.

The home is brand new ... built 6 months ago.

Diddy, with the help of mega-realtor Kurt Rappaport, was on the hunt for an L.A. home for years.