He said the rules aimed to reduce emissions without distorting competition among European car-makers.

'Balanced' plan

Verheugen said: "It is a balanced solution. It makes Europe clearly the frontrunner in CO2 reduction for cars."

The rules would "avoid any unjustified distortion of competition between automobile manufacturers", it said.

Germany has expressed concern that such laws would unfairly penalise its industry, which specialises in larger, higher class vehicles, while environmental campaigners have accused Brussels of climbing down to manufacturers.

German luxury car-maker BMW gave the EU move a cautious welcome. A company spokesman spoke of "the first steps in the right direction".

Stavros Dimas, the environment commissioner, had proposed the entire burden of cutting emissions to 120g/km be borne by vehicle-makers themselves, but was forced to compromise with Verheugen, who originally opposed any binding targets.

Verheugen said he did not rule out having different goals for different sizes of cars, requiring higher-polluting vehicles to make bigger percentage cuts in emissions than smaller, more fuel-efficient cars, for example.

Future decision

He stressed that no decision on the legislation had yet been made, including discussion of possible penalties for non-compliance by car-makers.

He said: "Penalties are something that we have not discussed."

The commission will carry out impact assessments and propose draft laws later this year or by mid-2008 at the latest.