BRUSSELS: Kosovo and Serbia on Wednesday agreed steps to take some of the heat out of a long-running dispute over car number plates, EU foreign policy chief Josep Borrell said.

"Very pleased to announce that (the) chief negotiators of Kosovo and Serbia under EU-facilitation have agreed to measures to avoid further escalation," he tweeted.

Serbia and Kosovo, which declared itself independent from Serbia in 2008, will now turn to focusing on an EU proposal on how to normalise their relations, Borrell said.

The latest dispute erupted after Kosovo said ethnic Serbs on its territory would be penalised if they did not swap vehicle licence plates issued by Serbia for registration numbers issued by Pristina.

Despite the order fuelling fierce protests by ethnic Serbs, Kosovar Prime Minister Albin Kurti had insisted the plan would go ahead -- before announcing on Tuesday he would delay it for two days, when he came under pressure from ally the United States.

Borrell on Monday, after hosting Kurti and Serbian President Aleksandar Vucic in Brussels for negotiations on the issue, had said Vucic had been ready to accept a compromise but Kurti had not.

On Twitter on Wednesday, Borrell said the deal reached by both sides entailed Serbia ceasing to issue licence plates with markings indicating Kosovo cities, and Kosovo "will cease further actions related to re-registration of vehicles".

Borrell added: "I will invite the parties in the coming days to discuss the next steps."

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Belgrade does not recognise Kosovo's independence, and that tension underpins much of the actions and disputes on the ground in parts of Kosovo where ethnic Serbs live.

The car-plate dispute took a grave turn this month when ethnic Serbs resigned en masse from public institutions.

The dispute sounded alarm bells in the European Union, which has been mediating talks to try to normalise ties, and wants both sides to hold off on provocative gestures.