European Union countries have reached a deal backing stricter climate rules that would eliminate carbon emissions from new cars by 2035 following hard-fought talks that dragged on into the early hours of Wednesday.

The 27 member states found a common agreement on draft legislation aimed at slashing EU greenhouse gases by at least 55% in 2030 compared with 1990 rather than by a previously agreed 40%.

"A long but good day for climate action: the Council's decisions on Fitfor55 are a big step towards delivering the EU Green Deal," said Frans Timmermans, the European Commission vice-president in charge of the Green Deal, after the meeting of environment ministers in Luxembourg.

The deal on the five laws proposed by the EU's executive arm last year paves the way for the final negotiations with the European Parliament.

EU politicians are backing ambitious bloc-wide targets and final approval of the legislative package will now require the Parliament to iron out differences with the bloc's national governments over various details.

French minister for the energy transition Agnes Pannier-Runacher said: "The Council is now ready to negotiate with the European Parliament on concluding the package, thereby placing the European Union more than ever in the vanguard of fighting climate change."

The decision to introduce a 100% CO2 emissions reduction target by 2035 for new cars and vans will effectively prohibit the sale in the 27-nation bloc of new cars powered by petrol or diesel.

The EU wants to drastically reduce emissions from transport by 2050 and promote electric cars, but a report from the bloc's external auditor showed last year that the bloc is lacking the appropriate charging stations. Transport accounts for about 25% of all greenhouse gas emissions in the EU.

Europe's leading clean transport campaign group, Transport and Environment, said the EU government's agreement is "historic" as it "breaks the hold of the oil industry over transport".

"It's game over for the internal combustion engine in Europe," the group said.

Greenpeace was more sceptical, saying the 2035 deadline was too late to limit global warming to below 1.5C (2.7F).

The deal poses a huge challenge for German car-makers, which have long relied on sales of increasingly big, gas-guzzling vehicles for their profits.

Following intense haggling within the three-party government, particularly between the environmentalist Greens and the pro-business Free Democrats, German officials voted in favour of the compromise overnight.

The German government said the deal will also see the Commission make a proposal that will allow cars that run exclusively on climate neutral e-fuels to continue to be sold after 2035.

Environment minister Steffi Lemke, a member of the Greens, said: "This is a huge step forward and steers the transport sector on to the path of climate neutrality."

By declaring that only cars and light utility vehicles which emit no CO2 can be sold from 2035, "we are sending a clear signal that we need to meet the climate targets. This gives the car industry the planning security it needs."

In addition to the landmark agreement on cars, the package also features a reform of the EU's carbon market and the creation of a social climate fund to help vulnerable households cope with the planned clean-energy revamp.

That particular issue has become more politically sensitive as Russia's war in Ukraine has sent fuel prices soaring.

The overall goal is to put the EU on track to become climate-neutral in 2050 and to nudge other major polluters, including the United States and China, to follow suit.