The possible deal between PSA Group - which includes Citroën - and FCA would create one of world’s biggest carmakers.
French daily Le Monde, citing a report by France's competition and consumer affairs anti-fraud agency DGCCRF, said carmaker PSA, owner of Peugeot and Citroën, has been found to have equipped its diesel engines on up to 1.9 million vehicles with so-called defeat devices that would reduce the level of nitrogen oxide emissions during testing.
Press reports in Germany said French carmaker PSA, which is to buy up General Motors' European arm producing Opel- and Vauxhall-badged vehicles, has told the German government that all four Opel factories in the country would continue to operate, while PSA's chief executive is to meet British Prime Minister Theresa May over the future of Vauxhaull's plants.
End of an era as Peugeot family loses control of a company it has run since the early days of steam-powered cars in 1889.
The minister was speaking ahead of a change in PSA's ownership structure that will see China's Dongfeng Motor take a major stake in the company.
Arnaud Montebourg, self-styled champion of 'Le Made in France', says increasing Chinese stake in carmaker will not lead to French loss of control.
Result is the worst in the firm's history, but France's number one carmaker insists it has built foundations for recovery.
On July 25 government will unveil plan to support the country's auto industry, including measures designed to boost spending on cars.
President Francois Hollande marked Bastille Day celebrations with a pledge to clean up French politics and oppose job cuts at Peugeot.
French president says in a TV interview that carmaker PSA Peugeot Citroen's plan to cut 8,000 jobs is not acceptable and needs to be renegotiated.
Unions describe the announcement as a "declaration of war" and Social Affairs Minister Marisol Touraine says the cuts are "unacceptable".
Reuters reports from once-prosperous Sochaux, eastern France, dependent upon its Peugeot car-making plant, where townsfolk now fear a grim future.