Under the draft rules, from September 2017 new models to market will be allowed to emit up to 2.1 times (110%) the 80mg/km nitrogen oxide limit. This will extend to all cars on sale by September 2019.
The allowance will be reduced to 1.5 times (50%) by January 2020 for new models, and by January 2021 for all cars sold.
The plan to use real driving emissions (RDE) tests was agreed by member states in October after Volkswagen admitted it had installed software in 11 million cars that allowed it to give false results in tests for nitrogen oxide emissions. RDE tests are considered to be more accurate than laboratory tests, and harder to manipulate, the European Commission said at the time.
The proposal was then passed to the European Parliament and Council for scrutiny.
The Parliament's environment committee wanted to reject the new method, saying that it allowed car makers to exceed existing caps on emissions for too long.
However, the Parliament agreed to go ahead with the RDE tests after the European Commission promised a review and a reform of the EU car approval regime.
The gradual lowering of the emissions limit is to allow for uncertainties brought in by the use of new portable emissions measurement systems (PEMS), the Commission said, and because of "technical limits to improving the real world emission performance of currently produced diesel cars in the short-term", it said.
It has been reported that two more votes must be passed before the European Commission can proceed.
The European Automobile Manufacturers’ Association (ACEA) said it welcomed the decision by the Parliament.
Erik Jonnaert, ACEA secretary general said: "This regulation will be a major challenge for the industry, with new and more stringent testing standards that will be extremely difficult to reach in a short space of time.”
"However, automobile manufacturers welcome the much-needed clarity, and are eager to move forward by implementing the new testing conditions as soon the regulation is adopted," Jonnaert said.
The motion to reject the draft rules was rejected by 323 votes to 317, with 61 abstentions. The Environment Committee will hold a public hearing on the RDE procedure on 23 February.