German politicians, industry agree diesel rescue plan -sources

* Politicians and auto industry agree diesel recall -sources

* Recall plan designed to avert diesel bans by cities -sources

* Audi announces recall, software updates (Adds Audi recall, source, background)

BERLIN, July 21 (Reuters) - Auto industry officials and politicians in Germany have agreed to clean up diesel vehicles through software updates as part of a rescue plan for avoiding diesel bans in cities, industry and government sources said on Friday.

The costs of the rescue plan amount to under 2 billion ($2.33 billion) euros for cars in Germany, with the auto industry agreeing to shoulder the expense of about 100 euros per car, the sources said.

After Volkswagen confessed to emissions-test cheating in 2015, the entire auto industry has come under scrutiny for producing nitrogen oxide emissions in diesel cars, which are blamed for causing respiratory disease.

Diesel-engined cars from all domestic and foreign car brands that conform to the latest emissions standards, Euro-6 and Euro-5, will be updated, the sources said. The plan is set to be presented at the beginning of August.

With the software updates, the auto industry is able to cut nitrogen oxide pollution by about 20 percent, the sources said.

A committee will be set up to measure the impact of updating diesel cars on individual communies and cities, with a view to averting bans of diesel engined cars, the sources said.

Auto industry executives and German Transport Minister Alexander Dobrindt are due to discuss diesel pollution at a summit on August 2.

Luxury car maker Audi, a division of Volkswagen said it would update engine software on up to 850,000 diesel-engined cars. The refit of six and eight cylinder engines will be free of charge for all customers, Audi said.

Audi's plan follows a similar move by Daimler last week, which announced it would spend 220 million euros updating over 3 million European Mercedes-Benz cars with diesel engines. ($1 = 0.8593 euros) (Reporting by Markus Wacket; Writing by Edward Taylor; Editing by Georgina Prodhan)