A spokesman for Sweden, which holds the EU presidency, said ambassadors backed the agreement. Energy ministers are expected to give the final green light on Tuesday during a meeting in Brussels.
Germany, one of the world's biggest car manufacturers, had irked its EU partners by blocking a deal that had already been approved under the bloc's standard legislative process.
The ban on internal combustion engines is key to the EU's ambitious push to become a "climate neutral" economy by 2050, with net-zero greenhouse gas emissions.
Germany blocked the deal at the 11th hour, calling for an exemption for cars that run on synthetic fuels, as divisions inside Berlin's coalition government undermined the EU process.
READ ALSO: Germany angers EU after putting brakes on fossil fuel car ban
The fuels for which Germany wanted an exemption are still under development and should be produced using low-carbon electricity, but environmentalists oppose them.
German Chancellor Olaf Scholz gave in to pressure from his liberal partners to maintain the unity of his fragile coalition, which also includes the Greens, and pushed for the fuels that would make it possible to extend the use of combustion engines.
With such a key text on the line, the European Commission clambered to break the impasse with Berlin by holding weeks-long talks with the German transport ministry.
On Saturday, the EU and Berlin hailed their deal to resolve the dispute.
German Transport Minister Volker Wissing said vehicles with combustion engines could continue to be registered after 2035 but only if they use fuels that are neutral in their CO2 emissions.
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