Last week, the public prosecutor's office in Munich announced it was investigating a total of 20 suspects linked to the never-ending Dieselgate scandal, mentioning it had searched Rupert Stadler's apartment.
Nicholson says prosecutors are investigating whether Stadler "acted quickly enough to stop deliveries of manipulated Audi vehicles within Europe".
"We confirm that Mr Stadler was arrested this morning. The hearing to determine whether he will be remanded is ongoing". He reportedly added that there is a "presumption of innocence" applied to Stadler's case.
Stadler is the most senior Volkswagen to be arrested over the so-called Dieselgate that came to light in 2015.
German news agency dpa reported that prosecutors chose to seek Stadler's arrest due to fears he might try to evade justice.
The auto manufacturer pleaded guilty to criminal charges in the United States and nine managers, including former CEO Martin Winterkorn, were charged.
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Volkswagen Group's woes are far from over as the emissions scandal gets uglier. The 55-year-old was arrested at his home in Ingolstadt in the early hours on Monday, they said.
Stadler's arrest will raise tensions on VW's supervisory board, putting at risk a fragile truce between management, labour representatives and board members from the carmaker's home region of Lower Saxony.
Autocar is due to receive an official comment from Audi imminently.
Volkswagen, which last week agreed to pay a fine of €1 billion ($1.2 billion) imposed by German prosecutors, confirmed the arrest.
It is worth mentioning here that Volkswagen's luxury vehicle brand Audi has earlier faced suspicions that its engineers had developed a software used in the diesel emission scam.
The scandal erupted three years ago, when it emerged that cars had been fitted with devices created to cheat emissions tests.