Fiat Chrysler faces a record $105m (£67m) civil fine and must offer to buy back more than 500,000 Ram pickup trucks to settle legal problems surrounding recall errors.
Owners of more than a million older model Jeeps, which have vulnerable rear-mounted petrol tanks, will also be able to trade them in or be paid by Chrysler (Xetra: 710000 - news) to have the vehicles repaired.
The Ram pickups - the country's top-selling vehicle - have defective steering parts which can cause motorists to lose control.
Some previous repairs have been unsuccessful, leading to the buy-back offer. Owners can also get them repaired, according to the National Highway Traffic Safety Administration.
The Jeep models have fuel tanks behind their rear axle, which are particularly vulnerable if the vehicle is rear-ended.
At least 75 people have died in crash-related fires, although Fiat Chrysler has insisted the cars are as safe as comparable vehicles from the same period.
Both the Jeep and Ram measures are part of a large settlement between the government and Fiat Chrysler over allegations of misconduct in 23 recalls over more than 11 million vehicles.
The company has also agreed to an independent recall monitor and strict federal oversight.
Transportation Secretary Anthony Foxx, in a statement, said: "Today's action holds Fiat Chrysler accountable for its past failures, pushes them to get unsafe vehicles repaired or off the roads and takes concrete steps to keep Americans safer going forward."
Fiat Chrysler said it accepted the agreement "with renewed resolve to improve our handling of recalls and re-establish the trust our customers place in us".
Buy-backs usually only take place when a problem is so serious it cannot be repaired and the vehicles need to be removed from service.
Under the terms of the agreement, Fiat Chrysler must buy the Ram pickups back for the purchase price, minus depreciation.
It is unclear how much it will cost the company to buy the vehicles.
Fiat Chrysler was hit by a $70m fine, and must spend at least $20m to meet performance requirements. It could face another $15m fine if any further violations are found by the recall monitor.
It comes after the company announced it was recalling 1.4 million vehicles in the US after hackers proved they could take control of one of its SUVs over the internet and drive it into a ditch.