The UK and EU have agreed on a "large part" of the agreement that will lead to the "orderly withdrawal" of the UK.
Photo: AFP / Dursun Aydemir / Anadolu Agency
Brexit negotiators Michel Barnier and David Davis said the deal on what the UK calls the implementation period was a "decisive step", but issues still to be resolved include the Northern Ireland border.
The transitional period is set to last from 29 March 2019 to December 2020 and is intended to smooth the path to a future permanent relationship.
Mr Barnier said there was also an agreement on the rights of 4.5m EU citizens in the UK and the 1.2m UK citizens in the EU after Brexit, including giving EU citizens arriving in the UK during the transition the same rights and guarantees as those who arrive before Brexit.
The proposed deal will include an emergency "backstop" option to avoid a hard border that could see Northern Ireland effectively staying in parts of the single market and the customs union, if no other deal can be agreed.
This backstop option has been ruled out by Theresa May and any deal creating a difference between Northern Ireland and the rest of the UK is opposed by her DUP allies.
Mr Davis said it remained the UK's intention to achieve a partnership that was so close it did not need a specific measure for Northern Ireland.
Simon Coveney, the Republic of Ireland's deputy prime minister, tweeted:
"Good meeting with Michel Barnier again this morning - Brexit negotiations are moving forward - progress of Irish issues remains a key priority for both negotiating teams and solidarity with our EU partners remains strong."
The UK will also be able to negotiate and sign trade deals during the transition period.
Both the UK and the EU hope the terms of an agreement on the transitional period can be signed off by Mrs May's fellow leaders at the EU summit this week.
The UK prime minister said the deal showed that "with goodwill on both sides", it was possible to agree an arrangement that works for all.
"A lot of hard work has gone in to setting out this timetable and details for the implementation period once we've actually left the European Union next March so that we can move to the ... strong, economic partnership we want with the European Union for the future," she said.
Mr Barnier said the new draft legal text marks a "decisive step" but added that it was "not the end of the road".
Mr Davis said the move would would give business the stability it had asked for, and would include safeguards for annual fishing negotiations during the transition period.
Mr Davis said it remained the UK's intention to achieve a partnership that was so close it did not need a specific measure for Northern Ireland.
- BBC