The fine by Braunschweig comes after prosecutors in Munich on Monday widened an emissions cheating probe into Volkswagen's luxury carmaker Audi to include the brand's Chief Executive Rupert Stadler among the suspects accused of fraud and false advertising.
The fine relates to the "impermissible software function" fitted to the EA288 Gen3 diesel engine sold in the U.S. and Canada, and EA189 diesel motor sold throughout the world. It's the latest move against the auto manufacturer, which admitted in 2015 that it had equipped cars with software that turned on emissions controls when vehicles were undergoing anti-pollution tests in the US.
"By doing this, Volkswagen takes responsibility for the diesel crisis", Diess said in a statement on Wednesday after VW agreed to accept the fine. The law goes into effect starting in November, just over three years after Volkswagen acknowledged widespread cheating on diesel-emissions tests.
The scandal, which came to light in the U.S. in 2015 after VW admitted to circumventing the emissions control system there for diesel vehicles sold since 2009, has so far cost the German automaker $4.3bn (£3bn) in federal penalties over there.
The company says it doesn't plan to file an appeal; the company has admitted fault in the so-called "dieselgate" scandal.
The scandal sent its share price plunging, and trashed confidence among consumer and regulators in diesel technology.
VW said it held a board meeting to discuss the crisis, with members of the supervisory board also being informed.
Martin Winterkorn, the former chief executive officer of Volkswagen, was indicted last month by USA prosecutors.
Winterkorn was the ninth person charged by the United States government over emissions cheating.