The European Parliament has approved the Services Directive, which makes it easier for a wide range of service providers to do business across borders and is widely seen as one of the most important EU directives for a decade.
The government said the landmark agreement will be worth up to £5bn a year to the UK economy and create up to 135,000 jobs.
The law was at first opposed by some EU member states, afraid of being undercut by countries with lower labour costs.
It was passed after MEPs removed the controversial “country of origin” principle, which would have allowed businesses to operate in another member state under the rules of their home country.
It is expected the directive will get ministerial approval next month and come into force in 2010.
Trade minister Ian McCartney said: “This directive is genuinely market opening. Importantly, it achieves this goal without affecting essential protections in areas such as health and employment.
“It is good news for both UK businesses and consumers. We will now have a Europe where businesses and entrepreneurs can tap into new markets without facing a mountain of unnecessary rules and regulations.
“Competition will increase, giving consumers a much greater variety and choice of services, resulting in higher quality at reduced prices.”
The directive covers a wide range of services, including:
business services – such as management consultancy, advertising, and facilities and office management
services to business and consumers – such as legal advice, estate agents and letting agents, architects, and distributive trades
consumer services – including tourism and travel agents, leisure services, amusement parks, plumbers and electricians.