European Union (EU) lawmakers approved new rules on Thursday to subject hedge funds to EU-wide supervision for the first time.

Members of the European Parliament voted 513 to 92 to pass the new rules after almost two years of difficult negotiations with EU governments.

"The adoption of the directive means that hedge funds and private equity will no longer operate in a regulatory void outside the scope of supervisors," European Commission President Jose Manuel Barroso said in a statement.

Barroso said the new rules, covering a range of funds worth 1 billion euros 1.38 billion U.S. dollars), would bring transparency and security to the way the hedge funds are managed and operate, which adds to the overall stability of European financial system.

The new rules oblige all hedge funds operating in the EU to obtain authorization and subject them to regulation and supervision so as to increase the transparency of the sector.

A "EU passport" system is introduced for the first time for hedge funds, which will allow hedge funds managers to market to investors throughout the EU on the basis of a single authorization.

Specifically, once a hedge fund is authorized in one member state and complies with the new rules, it will be entitled upon notification to manage or market funds to professional investors throughout the EU.

But for non-EU hedge funds, there is a two-year transition period before the introduction of a single EU passport.

The Paris-based European Securities and Markets Authority, a new EU financial supervision authority to be in work next year, will issue passports to non-EU hedge funds and allow them to operate in the whole EU.

The commission said this approach will ensure a level playing field and a consistently high level of transparency and protection of European investors.

The approval removed the final hurdle before the new rules come into force, expectedly in early 2011. As the last step, EU governments were expected to give their formal approval in the next few weeks.

The new rules had to be transposed into national law and applied by EU member states by 2013.