Munich prosecutors said they had acted because of a risk that Stadler might seek to suppress evidence.
German authorities on Monday detained the chief executive of Volkswagen's Audi division, Rupert Stadler, as part of a probe into the manipulation of emissions controls.
The move is an extension of the emissions scandal that has rocked Volkswagen since 2015 and led to billions in fines, the arrest of executives and the indictment in the U.S. of its former CEO.
Stadler's detention follows a search last week of his private residence, ordered by Munich prosecutors investigating the manager on suspicion of fraud and indirect improprieties with documents.
"Audi CEO Rupert Stadler was provisionally arrested this morning," the company said in a statement. It said shortly afterward that a judge had ordered him kept in custody pending possible charges at prosecutors' request.
The company said that it couldn't comment further due to the ongoing investigation, but stressed that "the presumption of innocence remains in place for Mr. Stadler."
German news agency dpa reported that prosecutors decided to seek Stadler's arrest due to fears he might try to evade justice. A former head of Audi's engine development unit is already in investigative detention.
A total of 20 people are under suspicion in the Audi probe, which focuses on cars sold in Europe that were believed to be equipped with software that turned emissions controls on during lab testing and off again during regular driving to enhance road performance.
Audi said in a statement last week that it was "cooperating with the authorities" in the probe.
Volkswagen first admitted in 2015 of using software to cheat on U.S. emissions tests. That has cost it $20 billion in fines and civil settlements.
Volkswagen has pleaded guilty to criminal charges in the United States and nine managers, including former CEO Martin Winterkorn, were charged there. Two are serving prison terms; Winterkorn and the others remained in Germany and are unlikely to be extradited.
German authorities this month fined Volkswagen $1.2 billion as part of their own investigation. They are also investigating Winterkorn and 48 others.
The arrest of the Audi CEO comes just weeks after Volkswagen tapped a new CEO to move the company past the scandal. Herbert Diess was given the top job in April and he said that besides focusing on new technologies, like electric cars, he wanted to build a more open, values-based culture to avoid the cheating that led to the emissions scandal.
Volkswagen shares were down 2.1 percent at 157.66 euros in Frankfurt trading.
