Volkswagen deceived more than 21,000 customers in Washington and 13,000 in Oregon who bought vehicles made from 2009-16 that emitted high levels of air pollutants linked with asthma attacks and premature death from respiratory or cardiovascular disease.
Diesel models involved in the cheat scandal emitted up to 40 times the permitted levels of nitrogen oxides, a harmful air pollutant.
The $176 million penalty is based on per-vehicle violations, according to the Department of Ecology, and once collected it will be used to reduce air pollution in Washington.
Washington and Oregon are already in line for more than $200 million from Volkswagen. That was part of a larger national settlement that forced the company to make cash payments to owners of its emissions-cheating cars.
Oregon officials have not made any announcements related to additional legal option. The state is still considering all its options, according to a spokeswoman in the Oregon Department of Justice.