Mitsubishi Motors Corp said it falsified fuel economy test data to make emissions levels look more favourable, and its shares slumped more than 15 percent, wiping $1.2 billion from its market value on Wednesday.
Tetsuro Aikawa, president of Japan's sixth-largest automaker by market value, bowed in apology at a news conference in Tokyo for what is the biggest scandal at Mitsubishi Motors since a defect cover-up over a decade ago.
Shares in the company closed down more than 15 percent at 733 yen, the stock's biggest one-day drop in almost 12 years.
In 2000, Mitsubishi Motors revealed that it covered up safety records and customer complaints. Four years later it admitted to broader problems going back decades. It was Japan's worst automotive recall scandal at the time.
The company said on Wednesday the test manipulation involved 625,000 vehicles produced since mid-2013. These include its eK mini-wagon as well as 468,000 similar cars it made for Nissan Motor.
It said it would stop making and selling those cars, and has set up an independent panel to investigate the issue.
Mitsubishi Motors sold just over 1 million cars last year.
Mitsubishi Motors is the first Japanese automaker to report misconduct involving fuel economy tests since Volkswagen as discovered last year to have cheated diesel emissions tests in the United States and elsewhere.
South Korean car makers Hyundai Motor and affiliate Kia Motors in 2014 agreed to pay $350 million in penalties to the U.S. government for overstating their vehicles' fuel economy ratings. They also resolved claims from car owners.