Rupert Stadler, the Chief Executive of German carmaker Audi, was arrested on Monday in connection with an investigation into the diesel emissions scandal.
German prosecutors named Stadler and one other Audi executive as suspects for fraud and false advertisement in the car maker's continuing emissions scandal, Efe news reported.
Nicolai Laude, a spokesperson for Audi's parent company Volkswagen, confirmed that Stadler had been arrested but he declined to comment on the investigation. He said the company's supervisory board would soon discuss the matter.
"The principle of the presumption of innocence continues to apply to Stadler," he added.
Munich prosecutors said they had acted because of risk that Stadler might seek to suppress evidence, CNN said. They added that Stadler would be questioned by Wednesday, once he had spoken to his lawyers.
Shares in Volkswagen dropped by 2 per cent in Frankfurt. Prosecutors said last week they had searched Stadler's home for evidence as part of an investigation that has been underway for over a year.
The arrest came just days after Germany imposed a $1.2 billion penalty on Volkswagen for rigging diesel engine emissions worldwide.
Volkswagen first admitted in 2015 it had rigged millions of diesel engines to cheat on emissions tests. Diesel cars from Volkswagen and its Audi subsidiary cheated on clean air rules with software that made emissions look less toxic than they actually were.
Martin Winterkorn, the former chief executive officer of Volkswagen, was indicted in May by US prosecutors. He was charged with wire fraud and conspiracy to defraud American customers and violate the Clean Air Act.