Step 1: Observing symptoms.
The symptoms include excessive thirst (polydipsia) and passage of large amounts of dilute urine (polyuria).
Step 2: Cause of diabetes insipidus.
Diabetes insipidus is caused by deficiency of ADH (antidiuretic hormone) or reduced kidney response to ADH.
Step 3: Effect on urine formation.
Due to lack of ADH action, water reabsorption is reduced, resulting in dilute urine.
Step 4: Conclusion.
Thus, the condition described is diabetes insipidus.