The U.S. government is accusing Fiat Chrysler of violating the Clean Air Act on some of its diesel engines installed in about 104,000 vehicles.

The Environmental Protection Agency accused the company of installing and failing to disclose engine management software in 2014, 2015 and 2016 Jeep Grand Cherokees and Dodge Ram 1500 trucks with 3.0-litre diesel engines sold in the United States.

Fiat Chrysler CEO Sergio Marchionne denied that the company was cheating.

"We have done nothing that is illegal," he said. "There was never any intent of creating conditions that were designed to defeat the testing process. This is absolute nonsense."

In a release, Fiat Chrysler responded by saying it is "disappointed" that the EPA issued the notice of violation. The automaker said it intends to work with the incoming administration to present its case "and resolve this matter fairly and equitably" and to prove to the regulator and its customers that its trucks meet environmental requirements.

"FCA US believes that its emission control systems meet the applicable requirements," the company said.

Fiat Chrysler also said it has no plans to discontinue selling 2016 U.S. diesel models.

'Must play by the same rules'

​The EPA is alleging that the undisclosed software results in increased emissions of nitrogen oxides from the vehicles.

"Failing to disclose software that affects emissions in a vehicle's engine is a serious violation of the law, which can result in harmful pollution in the air we breathe," Cynthia Giles, assistant administrator for EPA's enforcement unit, said in a release.

Ram pickup trucks are seen on the lot at a U.S. dealership. (Associated Press)

"We continue to investigate the nature and impact of these devices. All automakers must play by the same rules, and we will continue to hold companies accountable that gain an unfair and illegal competitive advantage," she said.

During a conference call, Giles said the software is designed so that during an emissions test Fiat-Chrysler's diesel-powered vehicles meet the standards that protect clean air.

"However, under some other kinds of operating conditions, including many that occur frequently in normal driving, the software directs the emission control system to operate differently, resulting in emissions that can be much higher," she said. "For example, the software reduces the effectiveness of emissions controls when driving at high speeds and for an extended period.

Disclosure requirement

The EPA said that as part of a certification process to ensure all vehicles meet U.S. emission standards to control air pollution, automakers are required to disclose and explain any software, known as auxiliary emission control devices, that can alter how a vehicle emits air pollution.

Fiat Chrysler said it has already proposed actions to address the EPA's concerns, "including developing extensive software changes to our emissions control strategies that could be implemented in these vehicles immediately to further improve emissions performance."

The EPA said Fiat Chrysler may be liable for civil penalties and injunctive relief for the alleged violations. On a conference call, Giles said the law provides for civil penalties of up to $44,539 US per vehicle sold for the alleged violations.

The environmental regulator said it is also investigating whether the auxiliary emission control devices constitute "defeat devices," which are illegal.

Simon Rivet, a spokesman for Environment and Climate Change Canada, said in an email to CBC News that the department's enforcement branch is "carefully evaluating the information released by the U.S. EPA to determine its relevance in Canada, and if an investigation is warranted into potential violations" of the Canadian Environmental Protection Act.

In Canada, Fiat Chrysler sales figures for 2016 indicate the company sold more 15,091 Jeep Grand Cherokees, along with 89,666 Dodge Ram pickups. Of those, approximately 39,000 vehicles were sold with the 3.0-litre diesel engine that is the subject of the EPA's allegations.

Shares of Fiat Chrysler sold off sharply on Thursday, falling more than 10 per cent to close at $9.95 US on the New York Stock Exchange.

Fiat Chrysler owns Dodge, Jeep and Ram Trucks, among other global brands. It offers diesel engines as an option on its bestselling Ram pickup and popular Jeep Grand Cherokee as well as other models.

The announcement comes one day after Fiat competitor Volkswagen pleaded guilty in Federal Court to criminal charges related to widespread cheating involving emissions tests with its "Clean Diesel" line of vehicles. Six high-ranking VW executives have been charged in the scandal. VW agreed to pay a record $4.3-billion penalty for cheating on emissions tests.

"I think we're all surprised that this could manifest again, but the reality is an automobile in 2017 is an enormously complex piece of engineering," said Greig Mordue, an associate professor at McMaster University in Hamilton.

"There are millions of lines of [computer] code, more lines of code in a car than a 747. So to have pieces of code embedded somehow, somewhere within the car that can somehow bypass [emissions testing] is hard to fathom, but it's completely possible, as we've learned already with Volkswagen," Mordue told CBC News.