According to a coalition of attorney generals, between 2008 and 2016 the German automaker equipped more than 211,000 diesel passenger cars and vans with software devices that optimised emission controls during tests but reduced the controls during normal operations.
The devices enabled vehicles to far exceed legal limits for nitrogen oxides, a pollutant that can cause respiratory illnesses and contributes to smog.
The statement alleged that Mercedes installed the devices because it couldn't reach design and performance goals such as fuel efficiency while complying with emissions standards.
The automaker allegedly concealed the devices from state and federal regulators and the public while marketing the vehicles as "environmentally friendly" and compliant with emissions standards.
A spokesperson for the automaker had no immediate comment.
Daimler AG and Mercedes-Benz USA already agreed in 2020 to pay $US1.5 billion ($A2.3 billion) to the U.S. government and California state regulators to resolve the emissions cheating allegations.
Fifty attorney generals, including the attorney generals of the District of Columbia and Puerto Rico, made up the coalition announced Monday. California was not part of the group.
The settlement calls for the automaker to pay the attorney generals $US120 million ($A180 million) with another $US29 million ($A44 million) payment suspended and potentially waived pending completion of a consumer relief program.
That effort will extend to the roughly 40,000 vehicles with the devices that hadn't been repaired or permanently removed from the road by August 2023. The owners of those vehicles would get $US2000 ($A3000) per vehicle if they install approved emissions modification software and an extended warranty.
The settlement also calls for Mercedes to comply with reporting requirements and refrain from any further unfair or deceptive marketing or sale of diesel vehicles.
Volkswagen also ended up paying $US2.8 billion ($A4.2 billion) to settle a criminal case due to emissions cheating.
