It added that a total of 774,000 Mercedes vehicles being used across Europe contain the defeat devices.
The ministry statement did not say whether those cars outside of Germany would be recalled.
German authorities have also discovered special programming in Daimler cars that they have classified as "inadmissible".
The emissions scandal has hung over the German auto industry since September 2015, when Volkswagen admitted to using software that could tell when a diesel vehicle was being tested and temporarily lower its toxic emissions to pass US regulations.
The reports allege that two engines (OM 642 and OM 651) come with devices that shut down emissions controls under certain situations.
Mercedes recalls hundreds of thousands of diesel cars over emissions "defeat devices"
"The government will order 238,000 Daimler vehicles to be immediately recalled Germany-wide because of unauthorized defeat devices", the ministry said in a statement. However, Germany's road vehicle authority, the KBA, has taken issue with the emission control features amid suspicion they allow vehicles to emit excess pollution without detection. Daimler hasn't contested the existence of the devices, but has argued that the devices may not be illegal. It's unclear exactly which models are being recalled, but the Vito 119 CDI, C 220 d and GLC 220 d have been identified, according to Autocar.
This week Dr Zetsche claimed Daimler had found a technical solution to update the software on the offending cars, which he hoped would help the company to avoid a fine. "Those functions are part of a complex emission control system created to ensure robust emission control in different driving conditions and over the lifetime of a vehicle".
'For the existence of the relevant test cycle NEDC, the specific programming in question is not required'.
"We don't see any evidence that Daimler was designing software to deliberately cheat on emission testing".
Evercore ISI analyst Arndt Ellinghorst said the recall would not harm the company. "Overall, this outcome should de-risk the stock".