The Department for Transport (DfT) has been far too slow to investigate whether Volkswagen should be prosecuted in the UK over the diesel emissions scandal, MPs claim.
A report published by the Transport Select Committee expressed concern about the "ambivalence" towards assessing the legality of the German car manufacturer's use of software to cheat environmental tests.
The committee warned that without proper sanctions there is little to stop a similar scandal from happening again.
The report stated: "The Department has been far too slow to assess the applicability of its powers to prosecute VW."
Labour MP Louise Ellman, chairwoman of the committee, said: "Volkswagen Group has acted cynically to cheat emissions tests which exist solely to protect human health.
"Volkswagen's evidence to us was just not credible but the Government has lacked the will to hold VW accountable for its actions.
"There is a real danger that VW will be able to get away with cheating emissions tests in Europe if regulators do not act."
The committee described VW's decision to compensate its customers in the US but not the UK as "deeply unfair" and called on regulators to ensure owners are not left out of pocket by the company's technical solution to the issue.
Ms Ellman added: "Vehicle owners have been refused goodwill payments. That is despite VW inflicting a great deal of uncertainty on its own customers, along with the prospect of declining residual values and the inconvenience of having to undergo repairs.
"We are concerned that VW's fix was developed at the lowest possible cost which might lead to increased costs for motorists down the line. We have called upon the Vehicle Certification Agency (VCA) to do everything in its power to ensure that does not happen."
The report warned that major improvements are required in the vehicle type approval system in Europe, with stronger independence and many more checks and balances required to restore consumer confidence.
MPs also expressed their disappointment that the DfT did not strive for even stricter emissions limits in new tests which will feature a real-world driving aspect.
Ms Ellman said: "We are concerned that manufacturers have far too great a say over how type approval reforms are implemented.
"There is strong evidence that vehicle manufacturers have employed a wide range of practices that are, in effect, defeat devices by another name.
"We have called upon the Department for Transport to be transparent in how it works with manufacturers to prevent both the spirit and the letter of the law from being broken."
VW admitted last September that 482,000 of its diesel vehicles in the US were fitted with defeat device software to switch engines to a cleaner mode when they were being tested.
It announced that almost 1.2 million vehicles in the UK were affected, but is disputing whether the software constitutes a defeat device in the European Union.
A DfT spokeswoman said: "We take the unacceptable actions of VW extremely seriously, and we have taken robust action to protect the UK consumer.
"That is why we called for a Europe-wide investigation, and were the first country in Europe to complete our own tests to ensure the issue was not industry-wide. We continue to push VW to ensure they take action.
"We led the way in pushing for the introduction of the Real Driving Emissions test that starts next year, which will ensure that emissions measurements reflect real-world performance, improve air quality and give consumers confidence.
"This new test is robust and will make a real difference. We are also starting further testing of products on the market and will set out more detail in due course."