The Spanish subsidiary of the German car manufacturer could have installed more than 500,000 altered engines at its Martorell plant near Barcelona, according to a report in El Pais.
Seat admitted that it had "equipped some vehicles with the Volkswagen EA189 engines," in an email sent to the Spanish newspaper, although it failed to provide an exact numbers.
However the company insisted that models currently on sale comply with European Union regulations.
The revelations emerged as Spain’s ministry of industry launched a probe into the scandal amid fears that it would affect sales and investment in Spain’s automative industry.
After a slow response to the scandal which broke on Friday, Minister José Manuel Soria on Wednesday set up a committee to monitor the crisis and called for an urgent meeting between 28 member states with the EU industry commissioner.
El Ministerio de Industria, Energía y Turismo expresa a Volkswagen su preocupación http://t.co/rTOsYFXP1I— Ministerio Industria (@mindustriagob) September 23, 2015
"The minister has asked the Volkswagen group to urgently provide all the information necessary to determine the extent of the problem in general and specifically how it might affect Spain," said a statement from the industry ministry.
"The minister expressed concern over this sort of situation and how it might affect economic recovery."
Volkswagen admitted on Tuesday that 11 million of its cars worldwide have been fitted with a programme that manipulates its output of polluting gases.
The latest revelations suggest the scandal could now reach far beyond the borders of the United States, where authorities revealed on Friday that VW had distorted the true emissions levels from hundreds of thousands of cars.
The actual emissions from its diesel engines could be up to 40 times the legal limit in the US.
The company also announced on Tuesday that it has set aside €6.5 billion to cover compensation costs and legal penalties that may be incurred from the scandal and also issued a warning about the impact on its profits.
Amid intense pressure Volkswagen CEO Martin Winterkorn quit on Wednesday afternoon.