“The Stuttgart-based firm sold vehicles with higher levels of damaging emissions than allowed for almost a whole decade between 2008 and 2016,” daily Süddeutsche Zeitung said.
Along with regional broadcasters NDR and WDR, the newspaper had access to a search warrant from a Stuttgart court allowing prosecutors to raid 11 sites belonging to the Mercedes-Benz and Smart maker in late May.
Investigators suspect that the world's largest luxury carmaker used a similar so-called “defeat device” to Volkswagen, which in 2015 admitted to manipulating emissions readings on some 11 million diesel vehicles worldwide.
Software in the motor runs the emissions treatment system at a higher setting when it detects the vehicle is undergoing regulatory testing.
Investigators believe cars fitted with the OM 642 and OM 651 motors filter out 95-99 percent of harmful nitrogen oxides under test conditions, but only between 35-85 percent in real on-road driving.
The motors were built into more than one million cars and vans by Daimler, including C, E and R class Mercedes.
According to the warrant, prosecutors sought to recover emails between 99 Daimler employees, one of them a member of the group's executive board.
Two Daimler employees from the team that created the software are under formal investigation on suspicion of fraud and false advertising.
But officials believe more people were involved and expect suspects will be added to the probe.
Daimler also faces an investigation by the United States Department of Justice, as well as a number of class-action lawsuits accusing it of false advertising.