The agreement made at an Environmental summit in Milan will allow scientists to develop fast-growing trees with a maximized capability of storing carbon dioxide, one of the gases thought likely to be responsible for the heating of the earth's atmosphere.
Under the terms of the UN Kyoto Protocol on global warming, rich countries will be able to plant forests in the developing world and offset the amount of gas absorbed against their own greenhouse emissions.
The agreement in principle was scheduled to be sent to environment ministers at a meeting of the 180-nation UN Framework Convention on Climate Change in Milan.
As part of the compromise draft plan, countries who have proposed to plant genetically-modified forests must carry out detailed risk assessments and avoid the planting of what are known as invasive species trees - those that drive out species native to the region.
An Italian spokesman, Aldo Iacomelli, said the agreement was thrashed out by the German and Brazilian co-presidents of the conference.
Environmental groups have been campaigning against such an extension of biotechnology. And scientists say that growing trees is only a temporary solution to the CO2 buildup.
Greenpeace and the WWF environmental groups, who had opposed GMOs (genetically modified organisms) in Kyoto, said the forest rules were "two steps forward, one step back".
The forest deal was the last to define the mechanisms of Kyoto. Remaining issues include a fund to help developing nations adapt to the feared impact of global warming, ranging from desertification to the melting of polar icecaps.
Under Kyoto, rich nations will be allowed to store up to one percent of their annual emissions of carbon dioxide in such forest sinks. Kyoto seeks to cut rich countries' emissions of carbon dioxide by 5.2 percent below 1990 levels by 2012.
The agreement has to be ratified by Russia before going into effect, and delegates were hoping that an agreement on forest carbon sinks would persuade Russia to stop dragging its feet over the agreement.The Kyoto protocol was severely limited by the walkout in 2001 of the United States, the world's biggest polluter.