Volkswagen Group AG (VLKAY) lead shares in German carmakers lower Tuesday after a court upheld a ruling that allows German cities to ban diesel-powered vehicles in Europe's biggest market.

Germany's federal administrative court said the ban upheld a decision taken by judges in Stuttgart and Dusseldorf in cases that were spearheaded by the Environmental Action Germany (DUH) environmental lobby group and opposed by Chancellor Angela Merkel's government. The ruling bars certain deisel-fuelled cars from entering the centers of major German cities as officials seeks to reduce nitrogen dioxide levels.

DUH head Juergen Resch called it a "full win for us" and a "great day for clean air in Germany" where 15 million diesel-powered cars are registered. 

Volkswagen shares were marked more than 2% lower in Frankfurt trading following the German court's decision before paring the decline to 1.83% and change hands at €166.90 each. Shares in rival Daimler AG (DDAIY) fell 0.55% while BMW AG (BMWYY) slipped 0.73%.

Most European auotmakers, including VW, have been planning a transition from diesel-powered cars since the group's embarrassing emissions cheating scandal was revealed in September 2015.

Last year, the world's largest automaker said it would pump more than $25 billion in new investment cash into its main car brand over the next five years and lifted its near-term sales guidance as part of its broader €72 billion investment overhaul.

The Wolfsburg, Germany-based carmaker said most of the cash -- €14 billion -- would be invested in its domestic market.

The moves follow sustained pressure for European automakers over the summer and autumn months after the European Commission confirmed it will study a report that linked several of the country's biggest brands to a decades-long program of collusion on technology costs and emissions controls.

The Commission said it had "received information on this matter", along with Germany's Federal Cartel Office, but noted it was "premature at this stage to speculate further."

The statement followed a report from Germany's Der Speigel magazine which said that carmakers including VW, Daimler and BMW may have met and colluded for as many as two decades on issues such as technology costs, strategy and diesel engine emissions controls.

If proven true, the EU could fine the automakers as much as 10% of their collective annual sales, a figure which could result in a penalty of as much as €50 billion ($58.3 billion).

Germany's Cartel Office said it had looked into the industry last year as part of an investigation into possible collusion in steel use but didn't mention any ongoing probes related to the Spiegel allegations.