BRUSSELS (Reuters) - In the wake of the scandal over Volkswagen's admission to cheating regulators, the European Commission said on Tuesday it would agree outline plans to reform the European system for approving new models of cars by the end of the year.

Volkswagen's use of software known as a defeat device to fake emissions performance has triggered widespread calls to change Europe's so-called type approval system, which leaves member states in charge of policing compliance.

"The focus is on clarifying and strengthening the recall system and the exchange of information among type approval authorities," a Commission spokeswoman said.

The spokeswoman said the new market surveillance rules would"streamline the procedures for co-operation and information exchange between the member states" and should be outlined by the Commission by the end of the year.

After that, the proposal would have to be approved by the 28 EU nations and the European Parliament.

The Commission admits it has known for years of discrepancies between real-world driving and emissions levels in laboratories where new models of cars are tested for compliance with EU law.

It outlawed defeat devices in 2007 and began work on improving testing procedures, which it said would make it far harder to use illegal defeat devices, although it said it had no specific knowledge of their use.

The new tests will supplement laboratory results by trying out cars in real-world conditions and will be phased in starting from next year.

But under the current regime, the Commission relies on national authorities to police the system once prototype new cars have been approved.

Calls are mounting for the creation of an independent EU wide regulator as campaigners argue the national regulators have no interest in questioning the legality of vehicles they have approved.

Claude Liesch, director at Luxembourg's type approver, told Reuters the type approval system was "a very good system" but could be improved by better market surveillance afterwards.