The European Parliament has pushed through legislation forcing car makers to reduce the CO2 output of new cars within four years.
The move is a blow to European car makers, who had expected the EU proposals to be toned down before coming into effect.
In particular, the influential German car lobby had been placing significant pressure on MEPs to 'water down' the controversial proposals. But European lawmakers dismissed their arguments out of hand.
"The German car lobby... has been sent away with its tail between its legs," Liberal Democrat MEP Chris Davies told the BBC.
Politicians on all sides believed a deal had been brokered to look again at the stringent CO2 legislation, as part of an effort to safeguard jobs within the motor industry.
But socialist MEPs - worried about their green credentials - are reported to have voted against the party line, pushing the 130g/km proposals through without revision.
Average CO2 emissions currently stand at 160g/km with manufacturers continuing to explore new technology in an effort to bring this down.
The car makers could now have just four years to achieve this or pay heavy fines, if the proposals are passed in the last law-making phase at the European Parliament.
These tough proposals have sent shockwaves through the already beleaguered European motor industry.
August's new car sales figures were significantly down year-on-year in Britain and elsewhere. This has led to car production being scaled back across Europe. In the UK alone, around 200,000 jobs rely on the motor industry.
"I know the (sales) figures in September are even worse," Conservative MEP Martin Callahan told the BBC. "So it won't be long before we see lay-offs. We have to be very careful. The vote today makes lay-offs, a loss of jobs more likely. There's no question".