What is the name of this technique?
AFAIK, there's no term that specifically describes the amount of diegetic to non-diegetic sound in a particular scene. In general though, the sound technique that's used in the OP's reference scene is referred to as "background music", where the non-diegetic sound is used to enhance the atmosphere of the scene.
Another classic film that jumps from one extreme to the other is Jaws.
Notice how the scene begins with only diegetic sound, and then once the camera takes the perspective of the shark it sharply changes to just background music. During/after the attack it then blends the two together, functioning to assist in combining the perspective of the shark with that of the beach-goers.
Of course the balance of diegetic to non-diegetic sound is extremely important and can subconsciously guide the audience, however, I don't believe there's an industry term to reference this shifting from one to the other (or of completely replacing diegetic with non-diegetic sound).