German business newspaper Handelsblatt and national news agency DPA reported that Herbert Diess, head of the VW brand - one of the group's 12 makes of cars, trucks and motorbikes - was slated to take Mueller's place.
The scandal surrounding the Volkswagen associated with intentional understatement of the level of harmful emissions from diesel engines, has erupted in the fall of 2015.
The promotion of Diess to the top job was widely expected after he helped reinvent the VW brand as a more profitable enterprise, though Mueller had been expected to serve for a longer period.
The restructuring is the most extensive undertaken by the company since the diesel emissions scandal three years ago which cost the company more than 20 billion euros.
Dressed in a dark blue suit and a burgundy tie, Diess and chairman Hans Dieter Poetsch were the only executives to field questions about the carmaker, even though VW announced a raft of new appointments on Thursday.
He continued in calling Diess "the right manager to do that".
Sanford Bernstein analyst Max Warburton said Diess' track record of cost-cutting points to a more efficient VW under his leadership. The company sold 10.74 million vehicles and made 11.6 billion euros (US$14.3 billion) in profit.
Diess appears to have an appetite for change, having warned employees in 2016 that "in its current form, our company is not sustainable".
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He will head up the management board that reports to the group's board of directors and take charge of vehicle development and research as well as vehicle-related information technology.
"We will emphatically address the special challenges that lie ahead of us, especially in electromobility, digitisation and new mobility services", he told a press conference at the group's Wolfsburg headquarters.
Diess brings an outsider's perspective to the job, having joined Volkswagen in July 2015 after spending almost two decades at rival German automaker BMW.
Besides, Volkswagen plans to organize the group into 6 new business areas including a separate China region.
It would also prepare its Truck & Bus division for a stock market listing.
Hans Dieter Pötsch, chairman of the supervisory board, said Diess was the right manager to ensure VW Group secured its position as an worldwide vehicle-maker, as well as being instrumental in shaping the future of personal mobility.
Another source said that removing Blessing, who also oversees VW's slow-moving efforts to establish a new corporate culture, will be part of a broader reshuffle that could also affect other senior executives.