Fiat Chrysler has been accused of installing software to cheat emission tests, by US regulators.
The car company's Milan-listed shares dropped 16.1 per cent on the news, after America's Environmental Protection Agency (EPA) accused the firm of fitting around 104,000 of its cars with software which cheated pollution tests.
“Failing to disclose software that affects emissions in a vehicle’s engine is a serious violation of the law, which can result in harmful pollution in the air we breathe,” said Cynthia Giles, assistant administrator for EPA’s Office of Enforcement and Compliance Assurance.
“We continue to investigate the nature and impact of these devices. All automakers must play by the same rules, and we will continue to hold companies accountable that gain an unfair and illegal competitive advantage.”
Fiat Chrysler could be "liable for civil penalties and injunctive relief", the agency warned. It said Fiat violated the Clean Air Act by installing and failing to disclose engine management software in Jeep Grand Cherokee and Dodge Ram vehicles with 3-litre diesel engines.
In a statement, Fiat's US arm said it was "disappointed" with the EPA claims and that its diesel-powered vehicles "meet all applicable regulatory requirements". It said it will prove to the EPA its emissions controls are justified and not "defeat devices" under applicable regulations.
The news comes after VW agreed to a $4.3bn (£3.5bn) draft settlement with US regulators to resolve its diesel emissions scandal. The German car giant said in addition to the fine it will plead guilty to criminal misconduct as part of the civil and criminal settlement.
Last September, Germany wrote to the European Commission accusing Fiat Chrysler of using an illegal device to turn off exhaust treatment systems in diesel engines in Fiat and Jeep vehicles sold in Europe.