Volkswagen chief executive Martin Winterkorn has resigned over the diesel emissions scandal.
The German car-maker has admitted that 11 million vehicles worldwide might have been fitted with software to trick emissions testers into believing their vehicles met environmental standards.
Mr Winterkorn announced he was stepping down but was not aware of "any wrongdoing on my part".
He issued a statement which read: "I am shocked by the events of the past few days. Above all, I am stunned that misconduct on such a scale was possible in the Volkswagen Group.
"As CEO I accept responsibility for the irregularities that have been found in diesel engines and have therefore requested the supervisory board to agree on terminating my function as CEO of the Volkswagen Group.
"I am doing this in the interests of the company even though I am not aware of any wrongdoing on my part."
Mr Winterkorn added that VW needed a "fresh start" and his resignation was "clearing the way" for that to happen.
He said he was "convinced" that the company would "overcome this grave crisis".
The Environmental Protection Agency (EPA) in the US said cars had been fitted with sophisticated software to switch engines to a cleaner mode when they are undergoing official emissions testing.
This is a type of software known as a "defeat device". Once on the road, the cars produced nitrogen oxide pollutants at up to 40 times the legal standard.
Volkswagen will need to formulate a co-ordinated response as it faces deepening scrutiny.
New York attorney general Eric Schneiderman said he would collaborate with other US states to enforce consumer and environmental law.
Mr Schneiderman said: "No company should be allowed to evade our environmental laws or promise consumers a fake bill of goods."
Other states are also looking at filing class action suits against the world's biggest car-maker and, according to reports, the US Department of Justice (DoJ) is looking into the issue, which raises the possibility of the company and individual executives facing criminal charges.
In the past the DoJ has often extracted hefty payments from companies to settle criminal charges.
Shares in VW were up 5% today, but since the scandal broke at the start of the week the firm has lost around one third of its value, or 26 billion euro (£19 billion).
Stocks in rival European large carmakers such as Germany's Daimler and BMW have also fell this week, but also made gains of around 1% today.
VW's shares are at around 111 euro (£81) today, and have already had a tough year, having fallen from more than 250 euro (£180) amid signs of faltering sales in the US and China.
It is not known whether the scandal affects cars on Britain's roads, but campaigners have demanded that the process for testing vehicles is made more stringent.
Tim Barlow, air quality expert at the Transport Research Laboratory, said Europe's laboratory system, which dates back to 1996, needs bringing up to date.
He said: "Current testing methods are outdated and offer room for error or optimisation, so it's imperative that industry, governments and regulatory bodies work together to find the best way forward.
"Ideally we need to move towards a testing model that's based on real driving emissions, carried out with vehicles operated on normal roads.
"This should be followed up with in-use compliance testing, whereby a sample of vehicles already in use are tested to check they still comply with the emissions limits."
Details of a real driving emissions test incorporating modern technologies and on-road conditions are being discussed by the industry and the European Commission.
It has been proposed that the test is introduced in 2017, but UK Transport Secretary Patrick McLoughlin has written to the European Commission to call for it to be introduced as soon as possible in the wake of the VW scandal.
He wrote: "The UK is committed to delivering cleaner air for our citizens and a key element of this is setting the correct standards for new cars at EU level.
"The UK has pressed for the earliest introduction of the new real driving emissions test and the current issue reinforces my view that we must finalise these measures urgently and so set a clear obligation for vehicle manufacturers."
The Society of Motor Manufacturers and Traders (SMMT) issued a statement which said the industry "accepts that the current test method for cars is out of date" and is seeking agreement with the European Commission for a process that "embraces new testing technologies and which is more representative of on-road conditions".
Volkswagen chief executive officer (ceo) Martin Winterkorn vowed to get to the bottom of the scandal shaking the carmaker, and do everything possible to prevent such an incident from happening again, but the German executive's own job may already be hanging in the balance.