The government will drop parts of legislation that could have seen the UK break international law after reaching an "agreement in principle" on Brexit divorce issues.
Cabinet Office minister Michael Gove said he was "delighted" to have reached an agreement, including on post-Brexit arrangements for the Irish border, following talks with European Commission vice-president Maros Sefcovic.
As a result, the government said it would withdraw the most controversial parts of its Internal Market Bill.
The proposed legislation had seen the EU launch legal action against the UK as part of a bitter row.
The government also promised not to introduce any similar measures in its Taxation Bill, which is due to be debated by MPs in the House of Commons later on Tuesday.
Mr Gove and Mr Sefcovic are co-chairs of the EU-UK Joint Committee, which oversees the implementation of the Withdrawal Agreement - the divorce deal Britain agreed with the bloc last year - and the accompanying Northern Ireland Protocol for post-Brexit border arrangements on the island of Ireland.
Their discussions are separate from the ongoing negotiations on a post-Brexit trade deal, which are still deadlocked ahead of the end of the Brexit transition period on 31 December.
Prime Minister Boris Johnson and European Commission President Ursula von der Leyen are due to meet in Brussels "in the coming days" in a bid to try and break the impasse on a EU-UK trade agreement.
The agreement between Mr Gove and Mr Sefcovic could help ease tensions between London and Brussels as trade negotiations go down to the wire.
An EU-UK statement announcing the Joint Committee agreement said: "Following intensive and constructive work over the past weeks by the EU and the UK, the two co-chairs can now announce their agreement in principle on all issues, in particular with regard to the Protocol on Ireland and Northern Ireland.
"An agreement in principle has been found in the following areas, amongst others: border control posts/entry points specifically for checks on animals, plants and derived products, export declarations, the supply of medicines, the supply of chilled meats, and other food products to supermarkets, and a clarification on the application of State aid under the terms of the Protocol."
The two sides have also reached an agreement on how goods will be considered "not at risk" of entering the EU when moving from Great Britain to Northern Ireland, as well as on parts of state aid rules and the make-up of an arbitration panel for settling disputes after the Brexit transition period ends.
The statement added: "In view of these mutually agreed solutions, the UK will withdraw clauses 44, 45 and 47 of the UK Internal Market Bill, and not introduce any similar provisions in the Taxation Bill."
The agreement in principle and draft texts are subject to final approval from both sides, before being formally adopted.
The government's publication of the Internal Market Bill earlier this year brought condemnation from critics both in Westminster and across European capitals.
US president-elect Joe Biden also intervened to warn against the Good Friday Agreement in Northern Ireland becoming "a casualty of Brexit".
The bill's most controversial clauses, which will now be withdrawn, sought to allow ministers to override the UK's Withdrawal Agreement.
The government admitted this could have seen the UK breach international law, but argued it was needed to protect the integrity of the UK, as well as the Good Friday Agreement.
Labour's shadow Northern Ireland secretary Louise Haigh described the agreement by the EU-UK Joint Committee as "a welcome step forward, after months of crippling uncertainty for Northern Ireland".
"An agreement, not reckless threats, has always been the responsible way forward," she added.
Conservative MP Sir Roger Gale, who has been a critic of the government's Internal Market Bill, said: "I'm cautiously pleased that an unnecessary and self-inflicted national embarrassment appears to be resolved."
Analysis: Agreement shows the UK is willing to compromise - but is it enough?
By Kate McCann, political correspondent
In agreeing to remove law-breaking clauses in the Internal Market Bill, the UK government has drawn a line under a controversial and - some critics say - damaging chapter in the Brexit negotiations.
The decision to include them was, UK sources say, a result of a promise to protect Northern Ireland and the Good Friday Agreement whether the UK and EU agree a deal or not.
But including them drew derision from around the world, as well as MPs and peers from across the political spectrum.
So what does this agreement by the Joint Committee mean for a Brexit trade deal?
You could argue it changes everything and nothing at the same time.
In one sense it could be seen as a concession to the EU which had warned the clauses were completely unacceptable.
But the UK government gave a clear indication it was prepared to drop or neuter the clauses yesterday and this failed to move talks on. The decision was welcomed in Brussels but didn't cause major political ripples.
On the flip side, this agreement means that in the face of a no-deal Brexit there will be protections for those moving goods between mainland UK and Northern Ireland, something which previously had not been the case.
This could be seen as a safety net to allow no deal to happen in a less damaging way, at least for that particular market.
Either way the next steps for the talks may not be hugely impacted by the decision, although it will likely go some way to reassuring governments around the world that the UK will stick to international legal agreements in future.
We need to see the details as these are yet to be published, but it does show the UK side is willing to compromise. It is unclear yet whether it will be enough.
Analysis: Even this deal won't restore trust completely
By Adam Parsons, Europe correspondent
The spectre of the Internal Market Bill has always been hugely unpopular in the European Union.
Its controversial clauses were seen as an unwarranted threat to the sanctity of the Withdrawal Agreement, and a show of bad faith. Very few in Brussels will mourn their passing.
Trust has been bruised and even this deal won't restore it completely.
One diplomat summed it up to me like this: "When you've been punched in the face by someone, you don't start to trust them just because they stop punching you".
But clearly this is a problem that has been resolved, and there is relief over that.
The EU has always placed great weight on the Irish border question and the uncertainty around the Protocol was stretching patience.
Resolution, some time before the end of December, has been warmly welcomed, even before the details are known.
Does this make a deal more likely? Certainly it will calm anger, and crucially it will mean that any future deal is much more likely to pass easily through the European Parliament.
But the Internal Market Bill was not the main problem for trade negotiators.
Those, of course, are threefold - the competition rules known as the level playing field, fishing and governance.
And the deal agreed today probably won't make any substantial difference to those contentious areas. Welcome? Definitely. But a breakthrough in trade talks? Probably not.
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2020-12-08 14:26:15Z
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