The rules, which still have to be discussed with the European Parliament before becoming law, are a response to the 2015 dieselgate scandal when German carmaker Volkswagen was found to have used software to cheat U.S. diesel emission tests.
Under the present system, national bodies such as Germany's KBA authority, have the power to clear new vehicles for the whole European Union and can also revoke those licences.
The new rules will allow other national authorities to review such decisions and also give the European Commission the power to carry out spot checks and fine manufacturers up to 30,000 euros per vehicle if they are found to be cheating.
In the run-up to Monday's ministerial meeting in Brussels, European diplomats had said Germany was reluctant to hand more market surveillance powers to Brussels despite the fallout from the VW scandal.
German junior economy minister Matthias Machnig told fellow ministers at the meeting his country was in favour of strengthening oversight, but added he wanted assurances on how to avoid a conflict between different agencies.
Since the Volkswagen scandal, investigations of various other carmakers revealed on-road nitrogen oxide (NOx) emissions as high as 15 times the regulatory limits, as well as the use of devices to mask real vehicle emissions.
"No week goes by without new revelations, new investigations," EU Commissioner Elzbieta Bienkowska told ministers. "It will never finish if we do not have a more robust system in Europe."
(Reporting by Robert-Jan Bartunek; Editing by Philip Blenkinsop and Toby Chopra)
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