The firm said the problem, which it came across while investigating diesel emissions, could cost about €2bn (£1.4bn).

Brands including VW, Audi, Skoda and Seat could be affected, a VW spokesman told BBC News.

The issue mainly affects diesels, but could also include petrol models.

The problem lies in the way certain car types with "smaller engines" were certified to meet carbon dioxide emissions standards, the spokesman added.

CO2 is a greenhouse gas, as opposed to the NOx involved in earlier allegations, which is a pollutant that causes lung disease.

The so-called irregularities that have now been found relate to the way in which CO2 emissions and fuel consumption were measured during the technical approval process for some models.

On the Frankfurt Stock Exchange, shares in VW were down 5.6% in early trading. The company's shares have lost about a third of their value since September, when the diesel emissions scandal first broke.

'Increasing gap'

Automotive engineer John German works for the International Council on Clean Transportation, a non-profit organisation dedicated to reducing vehicle emissions and is credited with helping to uncover the VW emissions scandal.

He said while VW is in the spotlight, the entire auto industry needs to look at emissions in general.

"There's an increasing gap between CO2 measured on test procedures (across the industry) and that reported by people in the real world."

"Manufacturers are exploiting flexibility, tolerances and loopholes in the regulations to be able to show lower emissions on the official test cycles, but they aren't necessarily being implemented in the real world."

The latest setback comes a day after US authorities accused VW of fitting nitrogen oxide defeat devices on its larger 3.0 litre diesel vehicles - charges which VW denied.

The company is already beset by scandal after US regulators discovered that some of its diesel vehicles were fitted with software that detected when they were undergoing emissions tests and changed the way they operated.

The so-called defeat device is understood to be in 11 million vehicles worldwide.

Earlier, it was announced that VW's sales in the US had risen in October, despite the scandal.

Source: BBC