Announcing the development at a briefing in Brussels, European Commission president Jean-Claude Juncker said the "breakthrough" had been achieved after months of negotiations.
If EU leaders agree, talks on trade can go ahead.
The deal will see no 'hard border' in Ireland while EU citizens in the UK can go on living as before.
Speaking to Premier, Christian Labour MP Stephen Timms, who sits on the Brexit Select Committee welcomed the announcement.
"What's happened today is that disaster has been averted and that is a good thing because if there had been a failure to agree and if we had to wait several more months to know what was going to happen in the transition period, that would have been genuinely disastrous," he said. "But there is a lot more work to be done before anyone can say this exercise has proved successful."
The bill for the UK to leave the EU is expected to be up to £39 billion.
Encouraging Christians to pray over the Brexit process, Timms said a good place to start was with Northern Ireland.
"[Pray] that the communities can come together and avoid the terrible conflicts of the past - that's the specific thing. For continued peace and improving relations across the communities in Northern Ireland.
"Also for a frictionless trading arrangement for no impediments to prosperity in the UK and in the EU as a result of the longer term trading deal that's still to be done."
Theresa May said the process of arriving at a withdrawal deal "hasn't been easy for either side", but the agreement represented a "significant improvement" on the text she was preparing to sign off on Monday.
Listen to Stephen Timms speaking with Premier's Marcus Jones.