The increase, a total of 2.84 million tonnes, would apply on an equal basis to the 27 Member States.
It does not prejudge the ongoing review of the dairy market in the Health Check of the Common Agricultural Policy, where the Commission has suggested a gradual increase in quotas before they expire on March 31, 2015.
In December, the Commission published a report showing that demand for milk has grown between 2003 and 2007 and is expected to continue growing between 2007 and 2014. The outlook for both demand and prices on the world market is equally positive. The report showed that a two per cent increase was fully justified.
Mariann Fischer Boel, Commissioner for Agriculture and Rural Development, said: "I am delighted that Ministers have backed an increase in quotas.
"We have seen clear increases in milk prices over the past year and a growing call for higher quotas. In the coming years, demand for high value-added dairy products will continue to rise both within Europe and around the world. We need to equip our farmers to meet that increased demand.
"We will come back to this issue in May in the Health Check proposals. We need to prepare a soft landing for the expiry of milk quotas in 2015."
As part of the 2003 CAP reform, the Commission originally proposed an additional two per cent quota increase on top of the 1.5 per cent already agreed for 11 Member States in Agenda 2000.
The Council decided against the additional increase but called on the Commission to report on the market situation, once the reform was fully implemented, before a final decision was taken.
The 2003 reform also made a number of other changes to the dairy market regime to make it more responsive to market signals, including a reduction in the intervention prices for butter and skimmed milk powder. It also agreed that quotas would end in April 2015.
Positive market developments, combined with the reform, have contributed to a situation where all export refunds are now at zero for the first time since the system was set up in 1968 and intervention stores are empty. Internal disposal aids are zero as well, as was foreseen to be the case after the reform.
The market outlook report concludes that between 2003 and 2007, expanding cheese and fresh milk production absorbed an additional 5.5 million tonnes of milk, while overall milk production remained stable.
According to the Commission's analysis, between 2007 and 2014, an additional supply of about eight million tonnes would be needed to meet growing internal demand, particularly for cheese. Meanwhile, the outlook for the world market is positive, with growing demand for EU foods in particular in emerging markets. Leaving quotas unchanged would prevent the EU from exploiting rising demand and healthy price levels.
The Commission's analysis shows that the market offers ample opportunities to absorb a two per cent quota increase. While it assumes that the increase will be fully utilised, the actual impact on production is likely to be more limited, taking into account the current situation where national quotas are not fully utilised in a number of Member States.
Irish Minister for Agriculture, Fisheries and Food, Mary Coughlan, announced an increase of two per cent in Ireland's milk quota from April 1, following agreement reached at the Council of Agriculture Ministers meeting in Brussels.
She said that this move by Council was very welcome and reflected the optimistic assessment of the future demand for milk.
"Ireland has the capacity to produce additional milk and this increase in our quotas, amounting to 108 million litres, is very useful at this stage. It is imperative that we give our milk sector the freedom to respond to increased demand,'' she said.
Turning to the future of milk quotas, Minister Coughlan said this will be the subject of important discussions in the coming months in the context of the CAP Health Check. She repeated her call to the Commission to ensure that actions are taken within the Health Check to provide a smooth transition to a situation post 2014 when quotas no longer play a part in market supports.
"It is important to ensure a genuine 'soft landing' in all Member States when quotas are phased out in 2014 and I want to ensure that Irish producers do not miss the opportunity to respond to the demands of the marketplace in an effective way.''