Volkswagen will pay at least $1.26 billion (about £1bn) in fines and have to fix or buy back almost 80,000 cars in the US fitted with its 3.0-litre TDI diesel engine.
Court documents filed yesterday evening also revealed Volkswagen could be forced to pay as much as $4.04bn in fines if US regulators don't approve the planned fixes for those engines.
In December last year, Volkswagen agreed to buy back up to 20,000 vehicles and fix another 60,000 fitted with the 3.0-litre diesel engine. The terms of this latest settlement - which has yet to be approved by a US judge - would mean owners who opt to have their vehicles fixed would receive between $7-$16,000 (£5547-£12,680) in compensation. A further $500 would be paid if the fixes Volkswagen proposes affect the performance of the car.
Owners who choose to have Volkswagen buy back their cars will get $7500 on top of the value of their car. Volkswagen previously agreed to buy back up to 475,000 vehicles fitted with its 2.0-litre diesel engine at a cost of up to $10.03 billion.
This settlement is seen as the last major hurdle for Volkswagen as the company looks to move beyond the dieselgate emissions scandal - although it still faces pressure from disgruntled owners for extra compensation, as well as lawsuits from some American states.
Volkswagen, which recently topped Toyota to become the world's largest car maker by sales, has been keen to show in recent months that its realignment and internal restructuring has taken effect. Its recent electric concept cars, the ID and ID Buzz, have shown Volkswagen in a new light, as the company looks to become a technology driven and eco-friendly manufacturer.