The development -- the fruit of long negotiations -- puts the bloc on track to improve its defence readiness, and also aims to "support defence industrial cooperation with Ukraine", the body, which represents member countries, said in a statement.
The 1.5-billion-euro budget for the European Defence Industry Programme (EDIP), provided as grants, covers the period 2025-2027, according to the agreement struck with the European Parliament.
European Commission President Ursula von der Leyen welcomed the news as an important step towards the EU being "defence-ready by 2030".
Negotiations on the EDIP had long been dogged by the question of whether or not to give a preference to European-made military equipment, weapons and ammunition.
Some EU countries wanted to use the programme to finance the purchase of materiel from outside the bloc, notably from the United States.
The compromise reached will limit the value of components made outside the EU or its partner countries such as Norway, to 35 percent of the total investment.
"EDIP will reverse the importation practice long observed in Europe, to concretely support a ramping up of our industrial base," said one of the lead MEPs on the issue, Francois-Xavier Bellamy.
Currently, the EU gets more than 60 percent of its military weapons and systems from outside the bloc, mainly from the United States. Brussels wants to reduce that to 45 percent.
Some 300 million euros from the first EDIP budget will go to defence cooperation with Ukraine.
The European Parliament said it has secured funding towards the budget from non-EU countries that also want to participate in the EDIP, such as Britain and Canada.
ob/rmb/phz
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