GRB 160821B is a short duration gamma-ray burst (GRB) detected and localized by the Neil Gehrels Swift Observatory in the outskirts of a spiral galaxy at z=0.1613, at a projected physical offset of 16 kpc from the galaxys center. We present X-ray, optical/nIR and radio observations of its counterpart and model them with two distinct components of emission: a standard afterglow, arising from the interaction of the relativistic jet with the surrounding medium, and a kilonova, powered by the radioactive decay of the sub-relativistic ejecta. Broadband modeling of the afterglow data reveals a weak reverse shock propagating backward into the jet, and a likely jet-break at 3.5 d. This is consistent with a structured jet seen slightly off-axis while expanding into a low-density medium. Analysis of the kilonova properties suggests a rapid evolution toward red colors, similar to AT2017gfo, and a low nIR luminosity, possibly due to the presence of a long-lived neutron star. The global properties of the environment, the inferred low mass (M_ej < 0.006 Msun) and velocities (v > 0.05 c) of lanthanide-rich ejecta are consistent with a binary neutron star merger progenitor.
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