Rupert Stadler, CEO of VW's luxury brand Audi, has been arrested in Germany as part of the still-ongoing investigation into who was truly accountable for the decision to install cheat devices on diesel cars.
Audi and VW confirmed the arrest and reiterated there was still a presumption of innocence for Stadler.
Stadler has denied the accusations and has said he is ready to be interrogated from Wednesday, added the spokesman.
The Munich prosecutors said the move against Stadler was not made at the behest of United States authorities.
The charges levelled at Stadler are in stark contrast to Volkswagen Group's claims that only lower-level management knew of the emissions cheats.
The emissions investigation was launched in 2015, when USA regulators found that Audi had implanted illegal software devices into millions of its diesel-fueled vehicles to cheat emissions tests. KBA has ordered the recall of 127,000 Audi vehicles, which include the latest Euro-6 diesel models, all located in European Union. Before becoming Audi CEO in 2007, Stadler worked as chief of staff to VW's former chairman Ferdinand Piech.
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VW's diesel scandal is far from over.
Auto industry expert Ferdinand Dudenhoeffer of the vehicle research centre called the allegations against Stadler "very serious".
Martin Winterkorn, former chief executive of Volkswagen, resigned after the automaker admitted to using the software.
Current boss Herbert Diess has been accused of knowing about the scam before it became public - an allegation rejected by the firm last month.
Stadler had previously denied any knowledge that engines were rigged, and his arrest comes just days after VW agreed to pay a $1.2-billion fine imposed at the request of German prosecutors.
But the saga has cast a wider pall over Germany's vaunted vehicle industry, shattering the myth of "clean diesel" and raising suspicions of emissions manipulation among other companies.
Winterkorn, 70, was indicted by US authorities in March, on fraud and conspiracy charges.