No accidents or damage had been reported in connection with the fault, but a risk to safety could not be excluded, the company said.
A quality watchdog in China said the fire risk was linked to a strip on the insulating panel inside the engine bay that could cause a fire if it comes into contact with other hot engine parts.
The recall affects CLS- and E-class models built between 2012 and 2014, including about 127,000 vehicles in China and 22,000 in Germany. The company was investigating whether there would be further recalls in other countries.
Defective parts were to be replaced free of charge to the consumer once they have been successfully recalled.
General Motors on Saturday recalled over 80,000 cars over concerns about its electric power steering systems – the latest in a series of similar incidents in the global automobile industry in recent months.