Based on a whistle-blower tip, Nissan has been doing an internal investigation over the past several months into suspected financial misconduct involving Ghosn and director Greg Kelly, the company said.
Nissan's chief executive Hiroto Saikawa planned to propose to its board that Ms Ghosn and Mr Kelly both be removed from their posts.
In the five-year period, the prosecutors believe Ghosn actually received a total of almost 10 billion yen in compensation but Nissan's annual securities reports show that his remuneration amounted to about 4.98 billion yen.
He has been accused of "significant acts of misconduct", including under-reporting his pay package and personal use of company assets.
Nissan's board is now set to meet on Thursday, when it is expected to agree to sack Ghosn and Representative Director Greg Kelly. For 2017, for instance, Ghosn demanded a 7.4m euro ($8.5m) package for his role, but the French government pushed back.
The violation of the financial law could entail a punishment of up to 10 years in prison, a fine of up to 10 million yen, or both.
"Mr. Ghosn masterminded the Renault-Nissan-Mitsubishi alliance, balancing three different companies with demanding elegance", the analyst said.
Apple iPhone XS, iPhone XS Max, iPhone XR production orders cut
Reports on the internet are attributing the reduction in production to the "lower-than-expected" demand of the latest devices. The component companies have both been supplying the Cupertino, California-based USA technology giant for years.
Japanese media said Mr Ghosn voluntarily submitted to questioning by Tokyo prosecutors on Monday.
Shares of Renault, which owns a 43 percent stake in Nissan, plunged 14 percent early Monday.
Broadcaster NHK and the Yomiuri newspaper reported that Ghosn was arrested by Tokyo prosecutors, while the Asahi newspaper reported that prosecutors began searching offices at Nissan's headquarters and other locations on Monday evening. Mr Saikawa said he was able to "exert influence" in the company. Ghosn gave up his role as CEO of Nissan last year and has said that he may step down as CEO of Renault before his four-year term ends in 2022, fuelling speculation the alliance could lose its architect and main leader of the past two decades.
Nicknamed "Le Cost Cutter", Ghosn's appointment inspired fears of social and economic upheaval amid plant closings, mass layoffs and the potential damage his reforms might inflict on Nissan's ties with its suppliers.
As well as his role with Nissan, Ghosn is the chairman of the Renault-Nissan-Mitsubishi Alliance, which encompasses ten brands and is one of the world's three largest vehicle groups. He was also a controversial figure in Japan as one of the only non-Japanese heads of a large Japanese company.
Ghosn served as Nissan's chief executive from 2001 until last April.
Ghosn, 64, built the three-way union of Renault, Nissan and Mitsubishi Motors.
Bloomberg News again reported that the Japanese automaker was resisting a combination unless it could gain more clout in key areas as top managers believed Nissan had better engineering capabilities to lead crucial operations such as product development.