The EU assembly recommended that average carbon dioxide emissions from new passenger cars are cut to no more than 125 grams per kilometer by 2015.
The EU's executive body wants to hold the auto sector to CO2 limits of 130 grams by 2012, with an extra 10 grams per kilometer slashed by using other measures such as less polluting biofuels and tax incentives.
The parliament's proposal is non-binding, but the legislature must approve any final deal with the EU governments. The emission plan is part of the EU's drive to reduce greenhouse emissions by at least 20 percent from 1990 levels in the next 13 years.
The EU executive says it needs to set an average legal limit for carmakers because they have failed to meet voluntary targets, although emissions have ben falling.
Car makers claim the binding rules would put 12 million auto-sector jobs at risk.
The Greens and environmentalists have claimed that neither of the plans goes far enough. A study they publshed last week said only a 120g/km limit by 2012 and a further reduction to 80g/km by 2020 would help the EU meet its targets.