French President Emmanuel Macron, however, warned London that work on settling Britain's financial obligations to the EU when it leaves was not even halfway done.
EU leaders agreed on Friday to start internal work on the bloc's relationship with Britain after Brexit, giving some progress for embattled Prime Minister Theresa May to take back home.
But the French President Emmanuel Macron warned London that agreement on the crucial issue of Britain's EU exit bill was still "a long way off."
EU President Donald Tusk said that the bloc's other 27 leaders meeting in Brussels had agreed to begin preparations for trade talks even though not enough progress has been made on the terms of the divorce.
"Brexit conclusions adopted. Leaders green-light internal EU27 preparations for 2nd phase," Tusk wrote on Twitter as EU leaders met without May to discuss the issue.
It took the leaders 90 seconds to approve the conclusions, an EU source said.
More to go
Macron said work on settling Britain's financial obligations to the EU when it leaves was not even halfway done.
He said more than half the work remained to be completed on the crucial issue of Britain's exit bill and that discussions could not move to the next phase on the future relationship until the three divorce issues of citizens' rights, the Irish border and financial settlement have been settled.
"A lot is in the hands of Theresa May," Macron said in a news conference at the end of an EU summit.
The toughest sticking point has been the bill Britain will pay as it leaves the EU club.
European capitals are demanding detailed written commitments on finance before progressing to trade talks, fearing that Brexit will blow a hole in the bloc's budget.
In a move that risks being seen as a snub to the EU's gesture, May insisted once again that a detailed financial deal could only be reached once Britain's future relationship with the bloc was agreed.
"The full and final settlement will come as part of the final agreement that we're getting in relation to the future partnership. I think that's absolutely right," she said at the end of the Brussels summit.
German Chancellor Angela Merkel, however, struck an optimistic note following a summit dinner on Thursday night where May addressed the leaders.
Merkel said that despite delays in the negotiations, she could see "zero indications that we will not succeed" in reaching a final agreement.
A clear deal needed
Written conclusions approved by the leaders said the EU will delay the decision on opening the next phase of talks until the next summit in December, but they will agree to "start internal preparatory discussions" on trade and a possible transition deal.
The slow progress of the negotiations, particularly on Britain's financial settlement, stoked fears that the country could leave the EU in March 2019 without a deal in place, risking economic and legal chaos.
Merkel, the bloc's most powerful leader, emphasised she did not want this, saying, "I want very clearly a deal and not some unpredictable solution, on this we are working very intensively."
"We hope that by December we have moved along enough to allow phase two to begin but that depends on the extent to which Great Britain makes progress so that we can say that it is sufficient on the core themes of phase one," Merkel said.
European Commission President Jean-Claude Juncker also played down fears Britain could leave the bloc without a deal in 2019.
"Our working assumption is not the no deal scenario, I hate the no deal scenario," said Juncker. "I want to have a fair deal with Britain."
The EU agrees that of the three key separation issues at stake, citizens' rights is the most advanced, but sticking points remain on the bill and Northern Ireland's border with Ireland.