The emissions scandal has hung over the German auto industry since September 2015, when Volkswagen admitted to using software that could tell when a diesel vehicle was being tested and temporarily lower its toxic emissions to pass US regulations.
"The government will order 238,000 Daimler vehicles to be immediately recalled Germany-wide because of unauthorised defeat devices", the ministry said in a statement.
Germany's Transport Ministry said on Monday that 774,000 Mercedes-Benz vehicles in Europe had been found to contain unauthorized software defeat devices and ordered Daimler to recall more than 200,000 cars in Germany.
The affected diesel models found to be fitted with these devices are the C-Class, Vito and GLC models, as these were the main ones affected.
Dieter Zetsche, chairman of Mercedes' parent company Daimler, is believed to have met with the KBA to discuss their findings.
In January 2017, USA regulators ordered a stop-sale of several Fiat Chrysler Automobiles' diesel-powered models, including its Jeep Grand Cherokee, after regulators said it emitted more nitrogen oxide than allowed by law.
Enlarge ImageMercedes-Benz is recalling 774,000 diesel models in Europe including examples of its GLC-Class SUV. Mercedes-Benz
A Daimler spokesman confirmed the recall to AFP, adding "legal questions will be cleared up in the appeal procedure" against the transport ministry decision.
Similar to Volkswagen's dieselgate scandal, it means these cars produce increased emission of harmful nitrogen oxides in the hands of customers compared to when they're tested for type approval by regulators.
This is specifically linked to two functions of the engine control in Mercedes-Benz Vito vans.
German authorities say Mercedes-Benz software reduces AdBlue injections after a certain period of time driving.
"We don't see any evidence that Daimler was designing software to deliberately cheat on emission testing".
Evercore estimates the recall will cost Daimler less than €100 million ($155.33m), helped by the fact no fines are now being imposed.More news: Metal Wolf Chaos XD - Teaser Trailer
More news: Warm and dry tonight, storm chances rumble in for Monday
More news: Next-gen Xbox consoles in development, Microsoft confirms