Almost three years after Volkswagen admitted to falsifying U.S. diesel emissions tests, the Munich public prosecutor's office said it was now probing 20 suspects, and had on Monday searched the apartment of Stadler and one other board member.
The news came after Germany's Bild am Sonntag reported up to a million Daimler cars had been found to contain illegal emissions devices, showing how the fallout from Volkswagen's scandal continues to dog the industry.
"Since May 30, 2018 the chairman of the board of Audi AG Prof. Rupert Stadler as well as a further member of the management board are now named suspects," the Munich prosecutor's office said.
The probe could trigger a leadership crisis at Audi and its parent Volkswagen where Stadler was in April elevated to the post of head of group sales.
Volkswagen declined to comment. Audi said it was fully cooperating with prosecutors. Stadler was in a board meeting and unavailable for comment.
Munich prosecutors said the two suspects were being investigated for suspected fraud and false advertising and for their alleged role in helping to bring cars equipped with illegal software on to the European market.
Stadler has been under fire ever since Audi admitted to using cheating software in November 2015 - two months after Volkswagen - but has enjoyed backing from members of the Porsche and Piech families who control Volkswagen and Audi.
Before becoming Audi CEO in 2007, Stadler was a confidant of, and former assistant to, then-Volkswagen chairman Ferdinand Piech, the scion of the group's controlling Piech clan.
Audi, the biggest contributor to Volkswagen's profit, admitted in November 2015 its 3.0 liter V6 diesel engines were fitted with a device deemed illegal in the United States that allowed cars to evade emissions limits.
In March, Audi's 20-strong supervisory board recommended that shareholders endorse Stadler as chief executive even as prosecutors raided Audi to investigate who was involved in the use of any illicit software deployed in 80,000 VW, Audi and Porsche cars in the United States.
Audi said last month it had discovered emissions-related problems with a further 60,000 cars.
(Reporting by Arno Schuetze, Edward Taylor and Jan Schwartz; Editing by Dale Hudson and Mark Potter)