A senior executive for the German carmaker has admitted it "totally screwed up" by deliberately circumventing the clean air rules on diesel cars, which meant some models were releasing as much as 40 times the level of legally allowed emissions.
The allegations circling "defeat devices" have affected 482,000 vehicles in the US to date.
However, according to the Transport & Environment group, "there is strong evidence that similar illegal devices are also used in Europe by both VW and other manufacturers".
The lobby group's clean vehicles manager, Greg Archer, also believes the fallout from the scandal could be more keenly felt in Europe.
"Diesel cars are niche in the US, and in most of the rest of the world, representing just one in seven cars sold worldwide. But in Europe, over half of new cars are diesels," he explained.
According to Mr Archer, 7.5 million of the 10 million diesel cars sold globally last year were bought in Europe, and the costs for manufacturers could run into billions of pounds.
The board of Volkswagen meets on Friday to decide whether to renew the contract of chief executive, Martin Winterkorn, amidst increasing speculation that he will be sacked.
The car manufacturer’s share price fell by 20% yesterday - taking more than €15bn off of the company's market value
There is no sign of this pressure easing, the German government has called for an urgent probe into whether VW and other car manufacturers have also manipulated emissions tests in Germany - while the South Korean Government has ordered an audit of Volkswagen diesel cars there.
Volkswagen could face a fine of up to $18bn from the EPA in the US or close to $38,000 for each diesel car it’s sold there over the past six years
Mike Hawes, the chief executive of the UK's Society of Motor Manufacturers and Traders, has signalled this is likely an isolated case.
He explained: "The EU operates a fundamentally different system to the US - with all European tests performed in strict conditions as required by EU law and witnessed by a government-appointed independent approval agency.
"There is no evidence that manufacturers cheat the cycle. Vehicles are removed from the production line randomly and must be standard production models, certified by the relevant authority.
"The industry acknowledges, however, that the current test method is outdated and is seeking agreement from the European Commission for a new emissions test that embraces new testing technologies and is more representative of on-road conditions."
Additional reporting from IRN
