According to the proposed rules, from now on member states will be compelled to punish anyone who publicly incites hatred or violence based on a person's race, color, religion, ethnic origin or descent.
Particular emphasis was placed on acts that outrightly "condone, denying or grossly trivialise crimes of genocide, crimes against humanity and war crimes".
Anyone convicted of denying the genocide of the Jews in Europe before and during the Second World War, or the mass killings in Bosnia and Rwanda will face a prison term ranging from one to three years.
Following their ratification by national parliaments, the rules will immediately become law.
However the deal, which was reached by ministers in Luxembourg and comes after almost six years of wrangling, falls short of Germany's ambitions of specifically outlawing Holocaust denial.
The text also notes that "member states may choose to punish only conduct which is either carried out in a manner likely to disturb public order or which is threatening, abusive or insulting".
Building on a previous attempt by Luxembourg in 2005, the bill has consistently been hindered by the problems that critics argue it might pose for free speech.
To make the text acceptable to the UK, Ireland and the Scandinavian states, 'Holocaust' denial will only qualify under the EU-wide rules if it is deemed likely to incite hatred.
It is covered in a clause that states that the EU-wide penalties will also apply to "publicly, condoning, denying or grossly trivialising crimes of genocide, crimes against humanity and war crimes", as defined by the International Criminal Court.
The EU minimum standards can of course be higher under national rules and Holocaust denial is already specifically targeted by laws in Austria, Belgium, France, Germany, Poland and Romania.
