In short I am looking for something like google-diff-match-patch in PHP.
I have had a look at some similar questions at SO, and also at the algorithm provided here, but
There is a php version of google-diff-match-patch available here: https://github.com/nuxodin/diff_match_patch-php
https://github.com/gorhill/PHP-FineDiff supports character-wise diff and can render the differences in HTML
There is a port of fresh version google-diff-match-patch library. It is much faster than previous and have no problems wth utf8.
The PEAR Package Text_Diff provides Inline-Diffs.