The process, called the 'European Semester', is to start from 2011. Governments in the 27-nation EU will send the main budget outlines to the executive Commission by the end of April.
"This [...] will allow the economic and budgetary policies of the member states to be monitored in parallel during a six-month period every year, so as to detect any inconsistencies and emerging imbalances," the EU ministers said in a statement.
The agreement on sharing information on budget plans is the most tangible result so far of work done by the ministers since May in an effort to toughen EU budget rules and prevent another sovereign debt crisis like the one triggered by Greece.
But Nobel Prize-winning economist Joseph Stiglitz, speaking in Budapest, criticised the European Union's austerity drive, saying it would only prolong the global downturn.
He said austerity as a policy to end the global crisis was a "disaster" and that Europe was heading towards more economic difficulties if politicians meant what they said when they promised to cut spending rather than just try to calm markets.
In France, trade unions organised strikes and massive street protests on Tuesday against unpopular reforms that raise the retirement age by two years to improve public finances.
EU ministers agreed that the European Commission will check if their budget plans are in line with economic guidelines set by EU leaders every March, national long-term deficit-cutting plans and reforms that often have to accompany fiscal cuts.
The Commission will then write an opinion and eurozone and EU finance ministers will discuss the draft budget plans at regular monthly meetings in June and July.
The EU is hoping such rigid oversight and peer review will prevent overspending and head off future debt problems, the cause of so much market turmoil and euro weakness this year.
The timing gives the EU a chance to look at budgets and reforms that will have a clear impact on other EU countries, but have not yet been voted into law by a national parliament.
This would help side-step the politically sensitive issue of the sovereignty of national parliaments' decisions on final budget proposals - a problem often raised by Britain.
The review would focus only on the main parameters of the budget drafts, allowing Britain to stick to its position that the British parliament must see the full budget first.
"We will present the spring budget to parliament as chancellors [finance ministers] have done in the past," British Finance Minister George Osborne said after the meeting.
"The elected House of Commons [parliament] will hear the budget information first. Then of course we will transmit that information to the Commission."
EU Economic and Monetary Affairs Commissioner Olli Rehn said that in the drive to update EU budget rules, ministers were taking seriously a request from nine EU countries to deduct pension reform costs from deficit and debt calculations.
The nine countries, mainly Central and Eastern European states and Sweden, believe that if such costs are not deductable, it would penalise those who try to put their public finances on a more sustainable footing.
Diplomats have pointed to Germany as the main opponent of deducting such costs from overall deficit numbers, although German Finance Minister Wolfgang Schaeuble appeared flexible.
"We are always ready to talk [...] We will find a solution together [...] I am not pessimistic," Schaeuble told reporters.
Slovak Finance Minister Ivan Miklos, however, was sceptical when asked if the nine countries are likely to get their way.
"Unfortunately, I don't think so. I think it is a relevant position, there are real reasons for it, but I don't see an overall consensus on supporting this," he said.
(EurActiv with Reuters.)