Germany's Transport Ministry has ordered an official recall for 238,000 vehicles sold in Daimler's home market.
The Transport Ministry said Monday that up to 774,000 Mercedes cars were affected by the switch-off technology in Europe, mentioning the already recalled Vito van as well as Daimler's GLC 220d and C 220d models.
Daimler said it would refit the software but denied any wrongdoing.
Five models in total are reported to be affected, including the volume-selling Mercedes C-Class - the UK's ninth most popular vehicle previous year - and GLC SUV variants.
The recall was announced after meetings on Monday between Daimler executives and Germany's top regulator failed to resolve the issue, which related to unapproved software functions found in the carmaker's Euro 6 diesel engines, according to a report in Bloomberg.
Vehicles kept to legal emissions limits for harmful substances like nitrogen oxides (NOx) during lab tests, only to exceed them as much as 40 times in on-road driving.
Daimler has pledged to work on removing the software and to cooperate with authorities, the ministry said.
Evercore ISI analyst Arndt Ellinghorst predicted the costs for the required software update for Daimler would be less than 100 million euros.
The manufacturer saw 11 of its sites in Germany raided by prosecutors in May 2017, with the searches said to be linked to investigations "against known and unknown employees at Daimler, who are suspected of fraud and misleading advertising connected to manipulated emissions treatment of diesel passenger cars". "Overall, this outcome should de-risk the stock".
Diesels have been under heavy scrutiny since U.S. authorities caught Volkswagen using illegal engine control software that turned off diesel emission controls in everyday driving.
"We don't see any evidence that Daimler was designing software to deliberately cheat on emission testing".
This comes just three years after VW admitted having fitted "cheat" devices in millions of its cars.