The world's biggest diamond company, De Beers, is to stop buying rough diamonds from Russian firm Alrosa after falling foul of European Commission rules.
De Beers will gradually reduce the number of Alrosa diamonds it buys
The commission said De Beers' promise to stop buying gems from Alrosa, its nearest rival, by 2009 would bring genuine competition to diamond supply.
The EU says the deal should mean more rough diamonds coming onto a market worth about $12bn (£6.9bn) in 2004.
De Beers faces fines up to 10% of its global turnover if it breaks the deal.
The EU said the settlement was approved under a process which allows firms to make binding commitments to avoid abusive practices, but without admitting wrongdoing.
"Following a phasing-out from 2006 to 2008, De Beers undertakes to refrain from all purchases of rough diamonds from Alrosa," the commission said in a statement.
"This will result in more rough diamonds being available on the open market, paving the way for genuine competition in the supply of rough diamonds."
De Beers, which is 45% owned by mining conglomerate Anglo-American, accounted for about half the world market in 2005.
Alrosa, in turn, extracts nearly a quarter of the world's diamonds.
As part of the plan, De Beers' purchase of Alrosa rough diamonds will reduce from $600m in 2006 to $500m in 2007 and $400m in 2008, the commission said.
The commission became involved because South African firm De Beers also operates in the European Union.