By mutual agreement, a top Manager will leave this post immediately.
The change in CEO was part of a wider management shake-up, the carmaker said. "For that, he is due to the thanks of the entire company".
"In order to sustainably implement the new structure, there will be a number of changes on the board of management".
The boss of the VW Group, Matthias Muller, has stepped down from his role as Chairman of the Group's Board of Management, the company has confirmed.
"At its meeting on Thursday, the supervisory board appointed Herbert Diess as his successor".
The automaker also moved to replace its human resources director, Karlheinz Blessing, with Gunnar Kilian.
More details about the restructuring are expected to be revealed at a press conference at VW's Wolfsburg headquarters on Friday morning.
The changes come as Volkswagen and other conventional auto manufacturers compete with industry newcomers such as Waymo and Uber for the burgeoning autonomous taxis and car-sharing services market, where vehicle ownership is less of a passenger priority.
"The creation of brand groups has been under consideration for a while", he said about the biggest overhaul since VW became a multi-brand conglomerate under former CEO Ferdinand Piech, a grandson of VW Beetle designer Ferdinand Porsche.
The scandal, in which VW installed emissions-cheating software in 11 million vehicles worldwide, has cost the firm at least $30bn (£22.4bn) in fines and other costs.
Notwithstanding, in May 2017 prosecutors in Stuttgart said they were exploring Mr. Mueller over doubts he may have thought about the diesel tricking before it ended up open. It is a scandal that continues to plague VW in Europe.
"Matthias Müller has laid the groundwork for our transformation", said new CEO Diess.
Shares in Volkswagen closed almost two percent higher to 176.60 euros ahead of the closely-watched board meeting, outperforming the Dax index of leading shares that was up almost one percent.
Even as Volkswagen has been moving to implement its Strategy 2025, the automaker has played some chess with its top executives, moving Herbert Diess, its brand chief, up to the top spot.
Other areas VW Group will focus include research and development, sales, and production.
Diess appeared to be on his way out at VW after a public clash with Osterloh who then accused him publicly of breaking promises and unduly pushing cost cuts.