The EU offered Europe's reeling auto industry a reprieve on Wednesday, agreeing to ease pollution limits for diesel cars despite the fallout from the Volkswagen emissions cheating scandal.

In a move that drew swift condemnation from environmental campaigners, EU member states agreed to ease the limits on nitrogen oxide emissions by 50 percent when measured in real driving conditions, reflecting the clout of the powerful auto industry that employs around 12 million workers in Europe.

"The EU is the first and only region in the world to mandate these robust testing methods. And this is not the end of the story," said Commissioner Elzbieta Bienkowska, responsible for Internal Market.

The Commission said the new, more realistic tests were a crucial step given that cars out on the road produced emission levels 400 percent higher than in the laboratory.

It was the major differences between the results in laboratory tests compared to ones in real driving conditions that prompted authorities in the US to confront Germany's Volkswagen, sparking the scandal that has rocked the auto industry.

The probe on Wednesday pushed Volkswagen to book its first quarterly loss in more than 15 years as it set aside huge amounts of money to cover the expected bill from regulators and angry customers.

The new EU tests are meant to be more reliable alternatives to the lab regime but car manufacturers in Europe insist that meeting the new standards will still require a significant grace period.

"The automobile industry is supportive to the fast adoption of a complete real driving emissions (RDE) legislation, so that manufacturers can plan to introduce new RDE-compliant diesel cars by September 2017," industry group ACEA said in a statement.

"ACEA supports a robust but realistic RDE package that will address the key environmental issues under a two-step approach, as already agreed by the member states," it added.

- Europe switches to diesel -

The EU auto industry has switched over to diesel in the past 20 years, accounting now for about 50 percent of the auto market, on the basis that it is much more efficient than petrol (gasoline) engines and that its known pollution hazards could be minimised by new technologies.

National regulators from the EU's 28 states approved the new norms at a technical meeting on Wednesday in Brussels.

A failure to agree would have raised the stakes by forcing the matter up to EU ministers for a verdict in December.

"This is an excellent result," a French official who took part in the meeting told AFP.

In the accord, the member states agreed to phase in real-driving tests over the next six years.

In a first step starting in September 2017, new models would be allowed to overshoot the EU's official nitrogen oxide limit by 110 percent.

In the second and permanent step, the discrepancy will be brought down to 50 percent.

Wednesday's announcement sparked anger among environmental groups.

"This disgraceful and legally questionable decision must be rejected by the European Parliament," said Greg Archer, of anti-pollution NGO Transport & Environment.

"For car-making countries 'Dieselgate' has never happened. Nitrogen dioxide pollution, mainly from diesel cars, causes premature deaths, asthma and birth abnormalities," Archer said.

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