Aung San Suu Kyi's party has refused to swear to "safeguard" an army-created constitution
The European Union on Monday rewarded Myanmar's "historic changes" by suspending a wide range of trade, economic and individual sanctions, but left intact an arms embargo, diplomats told AFP.
Foreign ministers from the 27-nation bloc meeting for talks in Luxembourg agreed a one-year suspension of measures targeting almost 500 individuals and more than 800 firms.
Suspension of the sanctions is intended to bolster sweeping reforms in the one-time pariah nation that culminated in opposition leader Aung San Suu Kyi's election to parliament on April 1.
"The European Union has followed with respect and appreciation the historic changes in Myanmar/Burma over the past year," said a statement adopted by the ministers.
It "will suspend restrictive measures imposed on the government, with the exception of the arms embargo, which it will retain" but "will monitor closely the situation on the ground, keep its measures under constant review," the statement added.
In London, Prime Minister David Cameron welcomed the suspension while highlighting the need to continue to monitor events in the still army-dominated nation.
"President Thein Sein has taken important steps towards reform in Burma, and it is right for the world to respond to them," Cameron said in a statement.
"But those changes are not yet irreversible, which is why it is right to suspend rather than lift sanctions for good."
Suu Kyi and others see the suspension as a way for the West to support the country's reformers.
In a first sign of discord, Suu Kyi's party has announced it will postpone its parliamentary debut in a dispute over the swearing-in oath.
In their statement, EU ministers called for the unconditional release of all remaining political prisoners and an end to ethnic conflict.
Despite the gathering pace of reforms by Myanmar's leaders, EU nations were split over doing away with sanctions, the likes of Germany favouring a swift lifting but hawkish former colonial power Britain keen to maintain clout in a nation still dominated by the army.
In an about-face following the April 1 vote, Cameron and Nobel laureate Suu Kyi urged a suspension of the measures, which date back to 1996 and have been reinforced several times since.
In all, 491 individuals stood targeted by an EU travel ban and asset freeze, though the bloc last February eased its stand by lifting a visa ban on 87 top Myanmar officials, including the president.
On the economic front, the EU had barred investments and banned imports of the country's lucrative timber, metals and gems.
Arriving for the talks with his counterparts, British Foreign Secretary William Hague warned that restrictive measures "can be reimposed if Burma turns in the wrong direction."
As businessmen queue up to return, EU foreign policy chief Catherine Ashton last week said she would travel to Myanmar on April 28-30 and had invited the southeast Asian state's foreign minister to Brussels.
"We will now enter into an active collaboration with Myanmar, to assist the reform process and to contribute to economic, political and social development," she said.