German authorities meanwhile heaped pressure on the embattled corporate titan, demanding it set out a timeline by Oct 7 on how it will ensure its diesel cars meet national emission standards without using the cheat technology.
VW sparked global outrage when it admitted that 11 million of its diesel cars worldwide are fitted with so-called defeat devices that activate pollution controls during tests but covertly turn them off when the car is on the road.
The spiralling scandal has badly tarnished VW's name, left it exposed to billions of dollars in fines in the United States and to investigations from Norway to India, while wiping about a third off its stock market value in a week.
Last Friday, after a marathon crisis session, the carmaker's board tapped company insider Matthias Mueller - chief of its luxury sports car brand Porsche - to steer the world's largest automaker out of the wreckage.
Mueller, 62, who replaces Martin Winterkorn as CEO, pledged that "we will overcome this crisis" and vowed to restore confidence through "an unsparing investigation and maximum transparency".
But an internal probe has already unearthed more troubling news for VW, as it faces judicial penalties and class action lawsuits, according to German newspaper reports Sunday.
Bild am Sonntag said that auto parts supplier Bosch had produced the device but warned the VW Group as early as 2007 that it was meant for test use only and that using it on the road to fake emission levels would be illegal.
A Bosch spokesman told AFP the company could not comment on details, citing a "confidentiality" agreement with its business partner.
And according to the Frankfurter Allgemeine Sonntagszeitung (FAS), a VW employee had also sounded the alarm in 2011, warning that the software may spell an "infringement" of the law.
According to the FAS article headlined "What did Winterkorn know?", and citing unnamed VW supervisory board sources, the internal probe had so far failed to discover why that warning was not acted on by management.
Meanwhile, VW came under pressure at home to quickly outline how it will fix the problem, which affects 2.8 million diesel-engine cars sold in Germany.
The federal motor vehicle office told VW to set out "binding measures and a timetable" by Oct 7 on how it will meet emissions standards without resorting to software that rigs test results, Bild am Sonntag reported.
If Volkswagen fails to comply, the KBA warned in a two-page letter, the authority could withdraw approval for the affected models, meaning they could no longer be sold or even moved on German roads, the report said.
A Volkswagen spokesman told AFP the company would soon present an action plan in Germany and "announce when we expect to launch a recall" that would include a software update, adding that "we are working at full throttle".
The European Commission said Friday that a new testing procedure will come into force in January, because the current laboratory tests do "not reflect the emissions of vehicles in normal driving conditions".
EU sources said the change aims to prevent the sort of rigging used by VW after research over several years had shown a difference between lab results and those found in real driving conditions.
The German group has suffered its biggest crisis in the same year it had reached its long-time goal - overtaking the Japan's Toyota as the world's top car maker by sales.
Since the revelation, it has been hit by a cascade of bad news, including the threat of massive fines for which VW has set aside €6.5 billion in provisions for the third quarter.
VW in the United States has stopped the sale of new diesel cars, while Switzerland has ordered a temporary halt to sales of the group's new diesels. India and Mexico have opened fraud probes, and France and Britain have also announced new checks.
Volkswagen's shareholders - dominated by the Porsche SE holding company, a separate entity to the luxury brand - are expected to hold emergency talks in Berlin on November 9.
German Environment Minister Barbara Hendricks, speaking to the Handelsblatt daily, said the scandal "casts a pall on the environmental promises of German companies".
The chief of German luxury auto giant Daimler, Dieter Zetsche, told the FAS it was too early to assess the negative impact on Germany's crucial car sector, adding: "I hope the damage isn't permanent."