Wednesday’s decision, made during a meeting of the UN Security Council, follows a rapprochement between Eritrea and neighbouring Ethiopia in recent months.
The Security Council welcomed the improved relationship between the two countries but added that Eritrea needs to strive for closer ties with its other neighbour, Djibouti.
Eritrea and Djibouti have been at odds over a border dispute since June 2008 that led to military clashes which killed a dozen Djiboutian troops.
Repeated violence over the disputed territory raised fears the conflict could engulf the entire Horn of Africa region.
In 2009, the UN imposed a nationwide arms embargo, travel ban and asset freeze on certain people and entities after accusing Eritrea of supporting armed groups in Somalia.
Eritrea has denied those allegations.
Earlier this year, Eritrea and Ethiopia signed a peace deal after a decades-long dispute.
Following that peace agreement, Eritrea asked the UN to lifts its sanctions, pointing to the region’s diplomatic shifts.
The dispute started in the early 1990s, when Eritrea gained its independence from Ethiopia, after which a war broke out later that decade over border disputes.
A 2002 UN-backed boundary demarcation was meant to settle the dispute for good, but Ethiopia refused to abide by it.
A turnaround began in June this year when Ethiopia’s Prime Minister Abiy Ahmed announced that Ethiopia would hand back to Eritrea the disputed areas, including the flashpoint town of Badme, where the first shots of the border war were fired.
In September, two border crossings were reopened just days before the countries signed a peace deal in Saudi Arabia, officially ending hostilities.
After the signing of that deal in Saudi Arabia, UN Secretary-General Antonio Guterres told journalists “a wind of hope” was blowing in the Horn of Africa.
“It is not only the peace between Ethiopia and Eritrea – it is the fact that tomorrow and the day after tomorrow we will have, here in Saudi Arabia, the president of Djibouti and the president of Eritrea – two countries that have also been at odds with each other,” the UN chief said.