"We have found an agreement with Germany on the future use of efuels in cars," EU environment commissioner Frans Timmermans said on Twitter.
"We will work now on getting the CO2-standards for cars regulation adopted as soon as possible."
German Transport Minister Volker Wissing said on Twitter that vehicles with combustion engines could continue to be registered after 2035 if they only use fuels that are neutral in their CO2 emissions.
Weeks-long negotiations between the European Commission and Germany to break the impasse centered on Berlin's desire for a stronger commitment on synthetic fuels than that presented in the initial text.
The synthetic fuels Germany wanted an exemption for are still under development and produced using low-carbon electricity. The technology is unproven, but German manufacturers hope it will lead to the extended use of combustion engines.
Environmental NGOs have disputed the value of synthetic fuels in the automotive sector's transition towards clean energy sources, saying they are too expensive, polluting and energy-intensive.
Some industry experts have expressed doubt over whether vehicles powered by synthetic fuels can compete in a market against electric cars that are expected to become cheaper over time.