Volkswagen and US officials reached a compromise on a settlement to compensate US owners of diesel cars that were intentionally built with software designed to cheat US emissions testing.
The agreement, which requires VW to buy back or fix some 500,000 affected cars, plus pay substantial damages to consumers in the United States, is an important step in addressing the exhaust scandal first revealed in September.
Judge Charles Breyer announced the plan in a court hearing in San Francisco, after the parties presented the details of the agreement to the judge. It was reached between VW and the US Environmental Protection Agency, California regulators, California attorney general's office and consumers.
Breyer said he was pleased to announce that the parties had submitted a "concrete plan." Breyer set a deadline until June 21 for a detailed agreement.
A spokesman for Volkswagen Group of America said the company was committed to earning back the trust of customers, dealers and regulators.
"These agreements in principle are an important step on the road to making things right," the spokesman said in an email to dpa. "As noted today in court, customers in the United States do not need to take any action at this time."
The US Justice Department said the agreement addressed just one aspect of the department's pending case against VW - "namely, what to do about the 2-litre diesel cars on the road and the environmental consequences resulting from their excess emissions."
The department's other investigations into VW's conduct remain active and ongoing, the department said in a statement.
These include possible fines reaching into the billions of dollars for violating US environmental law.
It was not clear how much the solution would cost VW. Its announcement on Thursday met the court's deadline for VW and US authorities to agree on a plan to modify about 580,000 vehicles sold in the US.
According to the German newspaper Welt on Wednesday, VW has agreed to pay every owner of an affected car 5,000 dollars. But neither Volkswagen nor the court confirmed that Thursday.
Shares in Volkswagen jumped in early trading Thursday following German media reports that VW had reached the deal. VW shares were up about 6 per cent to 127 euros (145 dollars) on the Frankfurt Stock Exchange.
Breyer is hearing hundreds of lawsuits against VW from across the country after the carmaker admitted in September that many of its cars had been modified to cheat emission tests.
Based in the northern German city of Wolfsburg, VW is facing the mounting costs of lawsuits, official investigations, recalls and vehicle modifications, as well as a fall in sales around the world in the wake of the revelations about the diesel emissions affair.
VW indicated in November that it is planning cuts in its workforce, after having announced moves to cap 2016 investment spending at 12 billion euros - a cut of 1 billion euros from recent years.
Next week the company will formally unveil its 2015 annual results, which are likely to reveal the impact of the emissions crisis on the carmaker's earnings.