The Munich II public prosecutor had been investigating the Volkswagen Group brand over claims that certain versions of the firm's V6 and V8 diesel engines breached requirements relating to "emissions service" and "power engine approval".
While the VW group has admitted 1.2 million vehicles were affected in the United Kingdom, it has refused similar payouts to owners on the grounds no European Union law was broken through the use of the software. The division of Volkswagen has accepted the 800 million euros fine, and the case is now closed, in Germany at least.
Such software allowed the vehicles to appear to meet regulatory emissions requirements under lab conditions, while in fact spewing many times more harmful gases like nitrogen oxides (NOx) on the road. The prosecutors said this included profits from the sales of affected vehicles.
Despite Tuesday's agreement, other probes against individual managers and executives from the VW group remain open.
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Earlier this month, Volkswagen terminated the contract of Audi CEO Rupert Stadler, who is in custody and under investigation for suspected involvement in emissions cheating. Two Volkswagen executives were sent to prison in the US.
Prosecutors had jailed him in June, saying the move was necessary to stop him trying to influence witnesses. It noted, however, that VW still faces a shareholder case for $9.5 billion that it said could run for "years". Volkswagen stock is down 11% so far this year.
German auto industry stalwarts like BMW or Mercedes-Benz parent Daimler have also become the targets of official probes, while French-owned Opel was confronted with a new investigation on Monday.
A new European Union emissions testing scheme known as WLTP has slowed deliveries of new cars, slashing registrations by 30.5 percent in September.