Volkswagen is accused of fitting cars with software designed to cheat emissions tests. (AFP)

An Australian court handed Volkswagen a record Aus$125 million (US$86m) fine Friday for misleading customers about the emissions from its diesel vehicles, with the company saying it may appeal.

The Federal Court found that an initial Aus$75 million penalty the company agreed with Australia’s consumer watchdog was “manifestly inadequate” and recommended the biggest fine ever in the country for breaching consumer rules.

The German auto giant is accused of fitting cars with software designed to cheat emissions tests.

The firm said it “firmly believes” the lower fine earlier agreed with the Australian Competition and Consumer Commission “was a fair amount”.

Volkswagen said it was “carefully reviewing the court’s reasons for deviating from that amount” and will “determine in coming weeks whether it will appeal”.

The company has paid tens of billions of US dollars in fines around the world since the scandal broke in 2015.

Worldwide 11 million vehicles were believed to be fitted with the so-called “defeat device” software, including 57,000 exported to Australia between 2011 and 2015.

Volkswagen said “most” of the 57,000 vehicles “have subsequently had an update to the engine-control software under the ongoing voluntary recall”