NEW YORK (AFP) - US regulators charged Volkswagen on Friday with manufacturing vehicles designed to evade government pollution controls and said the German auto giant should urgently fix nearly 500,000 cars.

Volkswagen could face an US$18 billion (S$25 billion) penalty over the software made to meet clean-air standards during official emissions testing but which would intentionally turn off during normal operations, US and California regulators said.

As a result, the diesel cars emit greater-than-allowed quantities of pollution linked to smog and various health ills.

"Using a defeat device in cars to evade clean-air standards is illegal and a threat to public health," said Cynthia Giles, assistant administrator for the US Environmental Protection Agency (EPA).

Both the EPA and the California Air Resources Board have launched investigations into the matter.

The EPA also referred the case to the US Department of Justice.

Potential civil penalties under the Clean Air Act could be as much as US$37,500 per car, or more than US$18 billion.

The origin of the case was a report last year by the International Council for Clean Transportation and West Virginia University that documented elevated emissions from some Volkswagen cars.

The cars in question could emit as much as 40 times the legal standard of nitrogen oxide, the EPA said.

'DEFEAT DEVICE'

When regulators initially raised the issue with Volkswagen, the automaker blamed the elevated pollution on "various technical issues and unexpected in-use conditions," EPA said in the violation order.

Volkswagen in December last year initiated a voluntary recall of about 500,000 cars. Regulators broadened their probe when the cars continued to pump out excess emissions after the recall, despite showing some improvement, the California board said.

At that point, regulators told Volkswagen that they would not approve the automaker's 2016 models "until VW could adequately explain the anomalous emissions and ensure the agencies that the 2016 model year vehicles would not have similar issues," the EPA said.

"Only then did VW admit it had designed and installed a defeat device in these vehicles in the form of a sophisticated software algorithm that detected when a vehicle was undergoing emissions testing," the EPA said.

California regulators said they would continue to probe the matter.

"Our goal now is to ensure that the affected cars are brought into compliance, to dig more deeply into the extent and implications of Volkswagen's efforts to cheat on clean air rules, and to take appropriate further action," said Richard Corey, executive officer at the California Air Resources Board.

A Department of Justice spokesman declined comment.

Volkswagen said it had received notice of an investigation "related to certain emissions compliance matters" from the EPA, the California board and the Justice Department.

"VW is cooperating with the investigation; we are unable to comment further at this time," it added.

The allegations cover 482,000 diesel models of Volkswagen Jetta, Beetle and Golf for 2009-2015 and the Audi A3 for the same years.

The action also affects the Volkswagen Passat for 2014-2015.

The EPA said it is "incumbent on Volkswagen to initiate the process that will fix the cars' emissions systems."