The move by transport ministry officials came as investors balked at the scandal’s financial impact, which some analysts said could cost Japan’s sixth-largest automobile maker almost $950m.
A flood of sell orders required a suspension of trading in Mitsubishi’s shares on Thursday, before the stock dropped by a daily limit of 20 per cent to ¥583.
The transport ministry said its officials raided Mitsubishi’s laboratories in Okazaki, central Japan, where the alleged misconduct is believed to have taken place.
Mitsubishi executives have said some of its employees had overstated fuel efficiency by 5 to 10 per cent on four types of small cars made and sold in Japan.
Test data were confiscated in two raids by officials that took place on Wednesday and Thursday.
Mitsubishi said it was fully co-operating with the investigation, and Tetsuro Aikawa, president, has apologised for the misconduct.
The transport ministry declined to comment on what penalties it might impose on Mitsubishi, saying its inquiry was at an early stage.
But Yoshihide Suga, Japan’s chief cabinet secretary, urged the ministry to take a “strict response”, describing the fuel data manipulation as “extremely serious”.
When Mitsubishi first disclosed the misconduct on Wednesday, it said the problems were focused on the Japanese market for mini-cars.
Three-quarters of the 625,000 vehicles affected were supplied to Nissan and sold under its brand.
Mitsubishi is planning to establish whether any cars sold outside Japan are affected.
If the problems do not spread overseas, where Mitsubishi generates 90 per cent of its sales, the scandal should not be as devastating for the company as one in 2000, when a cover-up of vehicle defects nearly caused its collapse.
But Masataka Kunugimoto, analyst at Nomura, estimated the latest scandal’s total cost for Mitsubishi could reach ¥104bn ($949m), including compensation to Nissan for lost sales and payments to consumers.
Mitsubishi is also expected to repay tax breaks to the Japanese government which are given to fuel-saving mini-cars, depending on how far their efficiency was exaggerated.
“The impact is far-reaching,” said Koji Endo, analyst at Advanced Research Japan.
In addition to these expenses, Mr Endo highlighted the fixed costs of operating the Mitsubishi factory at Mizushima that makes the mini-cars. It is expected to operate at very low capacity due to the decision to halt production of these vehicles, which constitute more than 40 per cent of the company’s domestic sales.
Prices of Mitsubishi vehicles in the used car market could also fall.
Before the scandal broke, the company had seen its earnings recover during a decade-long turnround effort that followed a bailout by other companies in the Mitsubishi group in 2004, which came after the affair about vehicle defects.
In its 2013-14 financial year, Mitsubishi resumed the payment of dividends for the first time in 16 years.
The company’s equity ratio, a measure of capital strength, stood at 47 per cent at the end of last year.
Analysts said Mitsubishi’s financial standing could now once again be eroded, depending on the scope of the scandal.
The cheating at Mitsubishi could also have serious consequences for the car industry, with regulators worldwide already moving to tighten regulations on fuel economy and pollution following the emissions scandal at Volkswagen.
At Mitsubishi, some employees are believed to have manipulated data about the effect of wind and tyre resistance on its petrol-powered mini-cars during laboratory tests.
At Volkswagen, the company installed software-based defeat devices in diesel-powered cars to understate emissions of nitrogen oxides in tests.
While the nature of the scandals at Mitsubishi and VW are different, Kota Yuzawa, analyst at Goldman Sachs, said a common problem was the gap between the performance of vehicles in the lab compared with real-world driving conditions.
He added that the scandal at Mitsubishi will accelerate debate about the need to close this gap.
“The rules of the game on environmental regulations are on the cusp of changing,” he said, adding that the challenge for carmakers was to meet these new standards with speed and at an affordable cost.
Takaki Nakanishi, a former Merrill Lynch analyst who now runs his own research group, said data falsification at Mitsubishi will be another catalyst to alter regulatory standards on fuel economy to eliminate loopholes.
“But that means a heavy burden for carmakers,” he added. “Mitsubishi may have lit the fire but the sparks will fall on the entire auto industry.”