The agreement was reached despite repeated attempts by the German government, under new Chancellor Angela Merkel for further concessions and delays on REACH.
Industry has argued that many of the provisions in the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH), would lead to huge costs and harm their competitiveness.
Yesterday the EU's Council of Ministers made further amendments, in favour of the chemicals industry, to a previous compromise agreed on REACH in November.
These include the rejection of an amendment adopted last month by the European Parliament requiring companies to substitute hazardous chemicals with safer alternatives whenever possible.
The deal by EU government ministers rejecting mandatory substitution could lead to a showdown between governments and European Parliamentary members next year, when the bill is due to go back to MEPs for further debate.
Under the European Council amendment removing the mandatory substitution clause, the new European regulator created by the law will have to grant an authorisation under an "adequate control" procedure, even if safer alternatives are available.
However the ministers also voted to strengthen substitution requirements for persistent and bioaccumulative chemicals. The ministers representing the EU's member governments also voted to drastically reduce safety data that chemical producers would be obliged to supply.
Günter Verheugen, the European Commission vice-president responsible for enterprise and industry policy, said the administrative body supported the changes.
"The Council's agreement is a reasonable compromise," he said yesterday. "We have succeeded in making Reach more effective and more workable. And we have succeeded in maintaining the competitiveness of EU industry and - a crucial point- reducing the burden for small and medium-sized companies."
However, yesterday Greenpeace called for the restoration of the chemical substitution clause, stating that the changes leave the door open for hazardous substances and potential carcinogens to stay in use on the market.
"After four years of REACH being watered down under chemical industry pressure, putting into practice a strong substitution obligation is the most important opportunity left to address the growing toxic chemical contamination and to ensure that human health and the environment are given the necessary protection," the group stated.
The European Consumers Organisation (BEUC) also said the Council's decision was a further victory for industry in watering down the aims of the regulation in protecting human health and the environment.
The Commission now expects that the final decision on REACH will be made by the European Parliament and Council in autumn 2006, and anticipates the regulation to come into force during spring 2007.
Since it will take about a year for the regulator to be operational, the Commission expects the law's requirements to be applied from 2008 onwards.