With the political agreement, the EU moves toward becoming the first major world power to enact laws governing AI. Friday's deal between EU countries and European Parliament members came after nearly 15 hours of negotiations that followed an almost 24-hour debate the previous day.
The two sides are set to hash out details in the coming days, which could change the shape of the final legislation.
The accord provided for safeguards on general purpose artificial intelligence, limitation on law enforcement use of biometric identification systems, bans on social scoring and AI used to manipulate or exploit user vulnerabilities.
Consumers would have the right to launch complaints and receive meaningful explanations while fines for violations would range from 7.5 million euros ($A12 million) or 1.5 per cent of turnover to 35 million euros ($A57 million) or 7 per cent of global turnover.
"Historic! The EU becomes the very first continent to set clear rules for the use of AI," EU Commissioner Thierry Breton, said on social media platform X on Friday.
"The AI Act is much more than a rulebook - it's a launch pad for EU startups and researchers to lead the global AI race."
European Commission President Ursula von der Leyen said the AI rules would provide a unique legal framework to develop trustworthy technology that does not impinge on the safety and fundamental rights of people and businesses.
One of the European Parliament's lead negotiators, Dragos Tudorache said the AI rules target large powerful AI models, ensuring they don't present systemic risks to the EU.
The use of AI in biometric surveillance had pitted policymakers who wanted to use it for national security, defence and military purposes against EU lawmakers who wanted to ban those uses because of privacy concerns.
Governments around the world are seeking to balance the advantages of the technology, which can engage in human-like conversations, answer questions and write computer code, against the need to put guardrails in place.
Europe's ambitious AI rules come as companies like OpenAI, in which Microsoft is an investor, continue to discover new uses for their technology, triggering both plaudits and concerns. Google owner Alphabet on Thursday launched a new AI model Gemini to rival OpenAI.
The EU law could become the blueprint for other governments and an alternative to the United States' light-touch approach and China's interim rules.
