Federal investigators probing Volkswagen's diesel emissions cheating scandal have uncovered evidence of criminal wrongdoing, The Wall Street Journal reported Monday, citing sources familiar with the matter.

The Justice Department is now negotiating a settlement which may involve significant financial penalties for the company, the newspaper said.

The German automaker has worked swiftly to put the emissions scandal behind it, reaching multi-billion-dollar civil settlements with most US states and offering to compensate owners and fix deficient automobiles.

But, with the possibility of criminal sanctions, Monday's news added a grave new dimension to the company's travails.

Prosecutors had yet to decide on specific charges, according to the Journal.

It said the department is weighing the alternatives of requiring a guilty plea from the company, or offering it a deferred prosecution agreement, which would require certain corrective behaviour by the company over time after which charges would be dropped.

A Justice Department spokesman declined to comment on the report.

In a statement, Volkswagen said talks were continuing with federal and state authorities, including the Justice Department.

"Volkswagen is committed to earning back the trust of our customers, dealers, regulators and the American public."

The company admitted last year to installing cheating devices on nearly 600,000 diesel-powered vehicles in the US and as many as 11 million worldwide.

Cars were configured to reduce harmful nitrogen oxide emissions during official pollution tests, while allowing emissions of up to 40 times the legal limit during actual driving.

The company, which also markets Audi and Porsche vehicles, settled civil cases in June over cheat devices on 2.0 liter cars in an agreement valued at $14.7 billion.

It still needs to settle complaints about its 3.0 liter diesel cars.

Lawsuits filed last month by the attorneys general of New York and Massachusetts implicated senior company executives in the emissions cheating, suggesting a current and former CEO may have been aware of it.

Both men, current CEO Matthias Mueller and his predecessor Martin Winterkorn, have denied personal responsibility for wrongdoing.