In this paper, we present a new multilevel in space and energy diffusion (MSED) method for solving multigroup diffusion eigenvalue problems. The MSED method can be described as a PI scheme with three additional features: (1) a grey (one-group) diffusion equation used to efficiently converge the fission source and eigenvalue, (2) a space-dependent Wielandt shift technique used to reduce the number of PIs required, and (3) a multigrid-in-space linear solver for the linear solves required by each PI step. In MSED, the convergence of the solution of the multigroup diffusion eigenvalue problem is accelerated by performing work on lower-order equations with only one group and/or coarser spatial grids. Results from several Fourier analyses and a one-dimensional test code are provided to verify the efficiency of the MSED method and to justify the incorporation of the grey diffusion equation and the multigrid linear solver. These results highlight the potential efficiency of the MSED method as a solver for multidimensional multigroup diffusion eigenvalue problems, and they serve as a proof of principle for future work. Our ultimate goal is to implement the MSED method as an efficient solver for the two-dimensional/three-dimensional coarse mesh finite difference diffusion system in the Michigan parallel characteristics transport code. The work in this paper represents a necessary step towards that goal.