The bloc in October suspended asset freezes and travel ban sanctions against 170 individuals and three entities in Belarus and foreign ministers decided to make that decision permanent, a statement said.
Four people not included in the October suspension because of their involvement in "unresolved disappearances" remain blacklisted and a longstanding arms embargo will also stay in place for another 12 months.
The foreign ministers noted that Lukashenko had, as promised, released the last political prisoners he held -- a "long sought step," according to the statement issued after their regular monthly meeting in Brussels.
Accordingly, ministers agreed to drop most of the sanctions, the statement said.
EU foreign affairs head Federica Mogherini said after the meeting that Belarus was "showing a positive trend which we want to encourage."
"It is not a rosy or perfect picture, that was the general assessment, but we agreed on a critical engagement; some more focused on the critical, others on the engagement," Mogherini told a press conference.
EU diplomatic sources told AFP last week there were some misgivings about ending the sanctions but that on balance, most felt it was the best option to ensure dialogue with Lukashenko and support efforts to improve human rights in the former Soviet-ruled state.
The foreign ministers said the 28-nation EU would keep a close watch on the human rights situation in Belarus, especially in the run-up to this year's parliamentary polls.
The EU also wanted more open government, with Belarus urged to allow "civil society to be more involved" while all obstacles to press freedom should be removed.
Belarus welcomed the announcement as an "important step" toward normalising relations with the EU.
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