BRUSSELS: The European Union on Tuesday agreed to create a trade tool aimed at punishing countries that seek to put pressure on one of its member countries, after China targeted Lithuania.

The new weapon would allow the 27-nation bloc to impose tariffs, restrict investment and limit access to public contracts for nations seen as engaging in economic blackmail, reports AFP.

"We'll be more assertive in defending our legitimate rights and interests."

The push to bulk up the EU's economic muscle was given impetus by a row with China over trade restrictions imposed on EU member Lithuania after it strengthened ties with Taiwan, which Beijing claims as its territory. 

The EU has started action against leading trade partner China at the World Trade Organization over the restrictions.

Beijing has denied taking coercive measures.

The new instrument was agreed between EU member states and lawmakers after a year of negotiation.

"It is one more tool at the service of our strategy for a less naive European trade," said France's trade minister Olivier Becht.

Divisions between EU members have typically hampered the bloc from flexing its collective economic might on the international stage.

The tool now hands more powers to the EU executive arm, the European Commission.

But unleashing the economic punishment would be only a last-ditch nuclear option if attempts at mediation fail.

In practice, EU member states will report complaints to the commission, which will have four months to rule if coercion is involved.

Any decision would need to then be signed off by a qualified majority of EU countries.

If they agree, a mediation phase would begin during which the commission would seek to convince the third country involved to end its objectional measures.

Only if that doesn't work would the EU be able to resort to its new powers.