Transition metal-rare earth (TM-RE) Fe/Tb-multilayer systems have been known to show exchange-bias-like shifts in the form of double hysteresis loop (DHL) along and opposite to the field cooling axis. Planar domain walls (DW), with opposite handedness at the interfaces, are held responsible for such DHL. Here, we report on the formation of nanoparticulated Fe layers in the Cu-matrix within a Fe-Cu/Tb multilayer and their eventual low temperature characteristics. AC susceptibility measurements indicate that these diluted magnetic clusters have a superspin-glass type of freezing behavior. Eventually, this Fe-cluster/Tb interlayer interaction, which is conjectured to be mediated by the pinned moments within the individual clusters, has helped in increasing the exchange bias field in the system to a high value of ≈1.3 kOe which gradually vanishes around 50 K. Polarized neutron reflectivity confirms a very strong antiferromagnetic (AF) coupling between the individual layers. The magnitude of the magnetic moment of each of the individual Tb or Fe-Cu layer remains similar but due to the strong AF-coupling at the interfaces, the entire ferrimagnetic Fe-Cu/Tb entity flips its direction at a compensation field of around 3.7 kOe. This study shows that magnetic dilution can be an effective way to manipulate the possible domain walls or the clusters in TM and thereby the exchange bias in TM-RE systems.