The country's vehicle manufacturers' association, the VDA, is calling on Chancellor Gerhard Schroeder to throw out the proposal.
It has been reported in the German press that the country's government has no plans to increase tax on diesel and that Schroeder was 'surprised and displeased' about the proposal put forward by members of Germany's ruling parties, the Social Democrats and the Green party.
VDA president Professor Bernd Gottschalk said: 'We are calling on the Chancellor to stop the silliness on the part of the ruling coalition as soon as possible. It takes a huge amount of cheek to label the already high taxation on diesel as an 'environmentally-harmful subsidy. 'Today the overall burden on diesel drivers tends to be greater than that on drivers of petrol-driven vehicles.
'The vehicle tax on diesel vehicles is three times as high. An additional punitive tax on diesels would endanger not only the agreed CO2 climate protection goals, but would also kill growth and employment in the only remaining stable key industry. Without diesels it would not be possible to achieve reductions in CO2 emissions.'
He said that diesels had done the lion's share of the work in largely fulfilling the country's agreement to reduce the fuel consumption of new vehicles by 25% by 2005.
The VDA said that while domestic passenger car production as a whole had risen by 9% since 1990, production of diesel cars had leapt by 208%.
Diesels now account for more than 40% of total car production, it added. Gottschalk said: 'Anyone who argues against diesels and abuses them simply as a means of filling a budget deficit is systematically endangering jobs in Germany.'
The Green party claims that exhaust emissions from diesel cars is 20 times more carcinogenic than those from petrol cars but the VDA says the research it refers to is out of date.