Mitsubishi Motors has agreed falsifying fuel economy data for more than 600,000 vehicles sold in Japan and around the world.
Tyre pressure figures were falsified by employees to flatter mileage rates, the company said.
Almost 470,000 vehicles that Mitsubishi made for Nissan were affected and the issue was uncovered after Nissan found inconsistencies.
The announcement sent shares in Mitsubishi down more than 15% in Tokyo.
Company bosses, including Mitsubishi Motors president Tetsuro Aikawa, bowed deeply at the start of a press conference on Wednesday afternoon in Tokyo.