Two agencies said the agreement included the largest-ever civil penalty, $83 million, and resolved allegations that the engines in as many as 1.3 million trucks built over the last 10 years had devices that defeated pollution controls.

The U.S. Environmental Protection Agency (EPA) and the justice department said the settlement covered Caterpillar Inc., Cummins Engine Co. Inc., Navistar International Corp., the Detroit Diesel Corp., Mack Trucks, Renault SA and Volvo.

Under the settlement, the companies will spend more than $1billion for corrective action, future improvements and the fines, federal officials said.

Federal officials charged that the companies had violated the law by selling heavy-duty diesel engines equipped with "defeat devices."

The devices consisted of software thatallowed engines to meet standards during laboratory testing, but disabled the engine's pollution control equipment during highway driving conditions.

"That's what it is -- high-tech cheating," Carol Browner, the EPA administrator, said at a justice department news conference to announce the settlement. "These defeat devices are really deceit devices."

Joining Browner was Attorney General Janet Reno who said, "The companies that dominate this single industry are coming together to correct their environmental violations. It is the largest settlement in the history of the Clean Air Act."

"The diesel engine industry has illegally poured millions of tons of pollution into the air. It's time for the industry to clean up its act and clean up our air," Reno added.

The companies maintained they did nothing wrong.

In a statement issued at its corporate headquarters in Peoria, Illinois, Caterpillar called the agreement "good for the environment" and "in the best interests of our company, our employees, ourcustomers and our shareholders."

"Our engines have never employed any type of device to evade EPA guidelines," Caterpillar Vice President Sid Banwart said. "Our engines have always been in compliance with the Clean Air Act and EPA emissions regulations."

Chicago-based Navistar International Corp. said it also believed its engines complied with the law, but that the settlement was "the appropriate way to avoid an argument with the EPA and get this issue behind us."

Ludvik Koci, Detroit Diesel's vice chairman, said, "This compromise avoids the costs and uncertainties that would result from protracted and complex litigation."

The companies said they will spend at least $850 million to introduce cleaner new engines, rebuild older engines to make sure they give off fewer emissions, recall pickup trucks that have the devices and conduct new emissions testing.

They also will spend $109 million for additional environmental projects, such as the development of new emission-control technologies.

Brownerdeclined comment on whether there was a criminal investigation, separate from the civil settlement.

She also vigorously defended the decision not to order a recall for large trucks, saying the devices would be replaced as engines are rebuilt, typically over a three-year period.

But the National Resources Defence Council, a non-profit environmental group, said the EPA failed to enforce the law.

"The law clearly requires that EPA order a recall of the engines," said NRDC senior attorney Richard Kassel. "If EPA doesn't order a recall, we will judge the settlement by whether it guarantees that the manufacturers will eliminate every pound of illegal pollution from the nation's diesel trucks and buses -- with no loopholes."

The agreement also required the companies to sharply reduce emissions from new engines by the end of the year and then meet levels beyond what the law requires in four years, the officials said.

In all, the agreement is expected to reduce nitrogen oxide air pollution from dieselengines by one-third in five years. The settlement was filed in federal court in Washington, D.C.