German car giant Volkswagen’s shares have plummeted nearly 20 per cent as investigations spread into revelations that hundreds of thousands of its diesel cars have software that secretly thwarts US pollution tests.

Volkswagen, the world’s largest carmaker by sales in the first half of this year, said it had halted all diesel vehicle sales in the United States during a probe into the scandal, which could lead to fines of more than $US18 billion ($A25.23 billion).

In addition to the environmental fines, US authorities have reportedly launched a criminal investigation into the company.

According to the US authorities, VW admitted that it had equipped about 482,000 cars in the US with sophisticated software that covertly turns off pollution controls when the car is being driven and turns them on only when it detects that the car is undergoing an emissions test.

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With the so-called “defeat device” deactivated, the car can spew pollutant gases into the air, including nitrogen oxide in amounts as much as 40 per cent higher than emissions standards, said the US Environmental Protection Agency, which announced the allegations Friday along with California authorities.

In Germany, now hosting the Frankfurt motor show vaunting the industry’s strengths and environmental credentials, the government launched an investigation into whether Volkswagen or other carmakers are doing anything similar in Germany or Europe.

Transport Minister Alexander Dobrindt told the Bild daily that he had asked Germany’s Federal Motor Transport Authority “to immediately have specific and extensive tests conducted on all Volkswagen diesel models by independent experts”.

Beyond the potential fines and lawsuits, and the billions of euros that evaporated in Volkswagen’s stock market value as its shares plunged 18.19 per cent to 133 euros ($A208.66) , wiping out more than $US15 billion, the company faces a potentially crippling blow to its reputation.

The vehicles affected are four-cylinder VW and Audi diesel cars in the US built since 2008.

In addition to the EPA’s probe, the US Department of Justice has launched a criminal investigation into the German carmaker’s’s alleged violation of US air pollution laws, according to media reports Monday.

VW chief executive Martin Winterkorn issued an apology Sunday, vowing that the group would co-operate with authorities and ordering an external investigation of its own into the matter.

“The board of management takes these findings very seriously. I personally am deeply sorry that we have broken the trust of our customers and the public. We will co-operate fully with the responsible agencies, with transparency and urgency, to clearly, openly and completely establish all of the facts of this case,” Winterkorn said.