Stadler was arrested earlier today after prosecutors in Munich suggested there was a risk he might try to suppress evidence and hinder their investigation.
Stadler is the most senior executive yet to be detained in the dieselgate crisis, which started when the Volkswagen group admitted in 2015 to installing so-called "defeat devices" in some 11 million diesels worldwide that made them seem less polluting in lab tests than they actually were on the road. In early June, Munich prosecutors summoned Stadler to answer questions alongside ex-VW Group CEO Martin Winterkorn, former Audi technical director Ulrich Hackenberg, and other Group execs concerning the emissions investigation.
Volkswagen has pleaded guilty to the criminal charges pressed against the company where two managers are serving prison time in US. Before becoming Audi CEO in 2007, Stadler worked as chief of staff to VW's former chairman Ferdinand Piech. He said the company's supervisory board would soon discuss the matter.
Last week, the Munich prosecutor confirmed that Stadler was under investigation.
Cars sold in Europe by Volkswagen group were believed to be equipped with a software that automatically turned off emissions controls during driving, flouting several pollution control laws.
It comes just a week after Volkswagen said it is being fined one billion euro (£880 million) by German authorities in connection with dieselgate.
The scandal has so far cost the VW group more than 25 billion euros ($29 billion) in buybacks, fines and compensation, and the company remains mired in legal woes at home and overseas. Winterkorn was charged with conspiracy and wire fraud in an effort to mislead USA regulators about the automaker's diesel emissions cheating. Last week, German prosecutors fined VW 1 billion euros (US$1.2 billion) over the scandal.