The draft rules, which will turn into EU law after the completion of negotiations with the European Parliament, could make it easier to sue ratings agencies if they were seen to make errors when ranking the creditworthiness of debt.
Diplomats from EU countries gave their broad backing to a draft law that will clamp down on the agencies, who had come under fire for giving top-notch AAA credit scores to debt that unravelled in the financial crisis.
"The proposals...set out to amend existing legislation on credit rating agencies in order to reduce investors' over-reliance on external credit ratings, mitigate the risk of conflicts of interest in credit rating activities and increase transparency and competition in the sector," the European Council said in a press release.
The deal, which some countries including France had hoped would be stricter, injects fresh momentum into a regulatory drive to change the way the big three credit rating agencies - Fitch, Moody's, and Standard & Poor's - work.
It means country ratings may have to be reviewed every six months, rather than once a year, as is often now the case.
One of the strongest proposed reforms imposes legal liability on rating agencies for their decisions although it is not clear how this would be enforced.
"The possibility to claim damages for an infringement of the (EU) rules ... should be available for all," the draft law says.
"It is only appropriate to expose credit rating agencies to potentially unlimited liability where they breach the regulation intentionally or with gross negligence."
An earlier proposal by the European Commission to force debt issuers, such as companies, to rotate the ratings agency they use to rank their bonds has been watered down.
It will now only apply to re-securitised debt, a market that officials from the EU's executive admit is largely dead.
"Due to the complexity of structured finance instruments and their role in contributing to the financial crisis, the draft regulation would also require issuers to engage at least two different credit rating agencies for the rating of structured finance instruments," the Council said.