Diess, joined Volkswagen in July 2015, after previously working at BMW.
"VW has to push changing its structure to become more agile", said Ingo Speich, a fund manager with Union Investment with shares in Volkswagen.
Several other executives were replaced as VW revealed a new management structure it says will enable faster decision making at a time when autonomous and electric cars are starting to transform the industry.
The company has yet to comment on the reason for the shake-up or offer official confirmation of the changes.
Mueller had attempted to right the ship after VW admitted to installing software in 11 million diesel vehicles worldwide created to cheat regulatory emissions tests.
The Volkswagen supervisory board is clearly taking a gamble on a safe pair of hands, hoping that the 59-year-old Diess will prove the wartime leader necessary for restoring a reputation that remains in need of heavy work.
He led the company through the aftermath of the scandal and turned in record sales and strong profits in 2017. The company also makes cars under the Audi, SEAT, Skoda, Bentley, Bugatti, and Lamborghini brands.
Oscar winning director Milos Forman passed away at 86
The Fireman's Ball was released in 1967 and Forman was then invited to the USA by Paramount Pictures to make a film in America. Never prolific, Forman's output slowed even more after " Amadeus ", and his three subsequent films were disappointments.
Volkswagen (VOWG_p.DE) directors will meet on Thursday to discuss a far-reaching shake-up of its structure and leadership, in a test of unity for the auto and truck maker's often divided management, labor chiefs and other stakeholders.
More details are expected to be revealed at a press conference at VW's Wolfsburg headquarters Friday at 10:30 am (0830 GMT).
Mueller had attracted criticism for his slow pace of change after Volkswagen announced in the wake of Dieselgate that it would transition itself to focus on electric cars and "mobility solutions provider", focusing a large part of its efforts on how people would move around cities in the future.
Volkswagen is similar to other large companies in Germany, which, under a policy known as co-determination, or Mitbestimmung, requires supervisory boards to grant equal representation to workers and members elected by shareholders.
Notably, this news comes as Volkswagen appears to be mulling a possible stock market listing of its truck and bus division - leading one to think that the different news items may be intimately linked together.
In addition to his role as Chairman of the Board of Management, Diess will be responsible for group development and research, as well as vehicle information technology. It said the head of purchasing, Francisco Javier Garcia Sanz, was leaving at his own request and that his post would be filled on an acting basis by Volkswagen brand purchasing head Ralf Brandstaetter.
Volkswagen is controlled by the Piech and Porsche families, who hold 52 percent of the voting rights. The German state of Lower Saxony has 20 percent and Qatar Holding 17 percent.
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