The state of the art for physical hazard prediction from weather and climate requires expensive km-scale numerical simulations driven by coarser resolution global inputs. Here, a km-scale downscaling diffusion model is presented as a cost effective alternative. The model is trained from a regional high-resolution weather model over Taiwan, and conditioned on ERA5 reanalysis data. To address the downscaling uncertainties, large resolution ratios (25km to 2km), different physics involved at different scales and predict channels that are not in the input data, we employ a two-step approach (\textit{ResDiff}) where a (UNet) regression predicts the mean in the first step and a diffusion model predicts the residual in the second step. \textit{ResDiff} exhibits encouraging skill in bulk RMSE and CRPS scores. The predicted spectra and distributions from ResDiff faithfully recover important power law relationships regulating damaging wind and rain extremes. Case studies of coherent weather phenomena reveal appropriate multivariate relationships reminiscent of learnt physics. This includes the sharp wind and temperature variations that co-locate with intense rainfall in a cold front, and the extreme winds and rainfall bands that surround the eyewall of typhoons. Some evidence of simultaneous bias correction is found. A first attempt at downscaling directly from an operational global forecast model successfully retains many of these benefits. The implication is that a new era of fully end-to-end, global-to-regional machine learning weather prediction is likely near at hand.