Last week, the public prosecutor's office in Munich announced it was investigating a total of 20 suspects linked to the never-ending Dieselgate scandal, mentioning it had searched Rupert Stadler's apartment. It said shortly afterward that a judge had ordered him kept in custody pending possible charges at prosecutors' request.
A spokesman for VW said: "We confirm that Mr Stadler was arrested this morning".
Stadler is the most senior company official so far to be taken into custody over the German carmaker's part in the emissions cheating actions first highlighted in 2015.
The same goes for Munich prosecutors and Stadler.
Audi, who has been caught up in the emissions scandal that afflicted Volkswagen, had no immediate comment.
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The prosecutors' office last week widened its emissions-cheating probe against Audi to include Stadler among the suspects accused of fraud and false advertising. The executive was arrested at his home in Ingolstadt.
Stadler, 55, who joined Audi in 1990 and has been its CEO since 2007, has enjoyed the full backing of VW's top brass so far.
The scandal has so far cost the VW group more than 25 billion euros ($29 billion) in buybacks, fines and compensation, and the company remains mired in legal woes at home and overseas.
Volkwagen Group was accused of selling diesel cars with software that turned on full pollution controls only when the vehicle was undergoing official emissions testing.
The fallout has cost VW more than $30bn to date - the bulk of that sum in the USA where, in May, prosecutors filed criminal charges against former VW boss Martin Winterkorn.
Stadler has been under fire since Audi admitted in November 2015 - two months after parent VW - that it also installed illegal "defeat device" software to cheat United States emissions tests.