Spending will total 135.5 billion euros ($181.6 billion) for next year - 0.5 billion euros less than the Commission proposed and 0.9 billion euros short of what the European Parliament had wanted.
But member states, hit with austerity measures at home, had been calling for a bigger slash to spending. The 2014 EU budget is 0.5 billion euros above what they sought.
"I'm glad that we could reach an agreement with the European Parliament on the financing of priority areas such as growth, employment, innovation and humanitarian aid," said Algimantas Rimkunas, deputy finance minister for Lithuania, which holds the EU's rotating presidency.
(Read more: EU budget deal on knife edge as deadline looms )
EU member states make a contribution to the overall EU budget, which is then invested across the region to bolster the bloc's economy. Many countries rely on key subsidies in areas such as farming. Poland is the biggest beneficiary from the budget, while Germany is the biggest net contributor.
Around two-thirds of the 2014 budget will be spent on subsidies for European farmers and development projects in the EU's poorer regions. But the so-called "cohesion" budget has seen a 7 billion euro cut.
The 28-nation bloc also pledged 3.9 billion euros to bolster job training and employment opportunities for the billions of young people unemployed across the continent.
Tuesday's agreement is expected to be sealed by the European Parliament and ministers next week, bringing an end to a long-running saga over the EU's spending.
(Read more: Budget tensions flare up in Europe )
The agreement will also pave the way for the European Parliament to approve the EU's long-term budget or Multi-annual Financial Framework, which runs between 2014 and 2020, during a voting session next week.
With a 6 percent cut from 2013, next year's EU budget was termed an "austerity budget" by Anne Jensen, a Danish Liberal Member of European Parliament (MEP) and the Parliament's chief negotiator in the budget talks. MEPs were calling for a higher budget than was negotiated but settled on the lower ceiling.
"Parliament has taken its responsibility by accepting a lower budget. But we managed to get the priorities right and prevent the EU from starting 2014, the first year under the new Multi-annual Financial Framework, in the red", said the Parliament's budgets committee chair, Alain Lamassoure.
-By CNBC's Arjun Kharpal: Follow him on Twitter @ArjunKharpal