The US Justice Department has filed a civil lawsuit against Volkswagen AG (VW) for violating the Clean Air Act after it was found the automaker had been installing devices to cheat emissions tests in its vehicles.
An official from the Justice Department said that the case could cost VW billions of dollars with a charge of $37,500 (£26,000) per altered vehicle.
"The United States will pursue all appropriate remedies against Volkswagen to redress the violations of our nation's clean air laws," said Assistant Attorney General John Cruden.
The Justice Department has also been investigating criminal fraud allegations against Volkswagen for misleading US consumers and regulators, but criminal charges will require a higher burden of proof than the civil lawsuit.
"We're alleging that they knew what they were doing, they intentionally violated the law and that the consequences were significant to health," said one senior Justice Department official.
To win the civil case, the government does not need to prove the degree of intentional deception at VW, just that the cheating occurred.
The car manufacturer is expected to argue for a lower penalty on the grounds that the proposed fine would financially cripple them.
To cheat the emissions controls, VW installed software that allowed the vehicles to detect when they were being tested on a flatbed.
When the vehicles detected that they were being driven on the road, the software caused the emissions control systems to underperform or shutdown, which allowed the cars to emit dangerous levels of air pollution.
"Volkswagen will continue to work cooperatively with the Environmental Protection Agency on developing remedies to bring the TDI vehicles into full compliance with regulations as soon as possible,” VW said in a statement.
“In addition, we are working with Kenneth Feinberg to develop an independent, fair and swift process for resolving private consumer claims relating to these issues."
The company is embroiled in two separate scandals, due to the manipulation of both nitrogen oxide and carbon emissions.
Last month, VW said it estimated that only 36,000 vehicles were equipped with devices to understate their carbon emissions, far lower than the 800,000 initially predicted.