The decision was made without the backing of Spain, says the BBC, which had demanded that it host a ground station for the network of 30 orbiting satellites.
Ministers had until the end of the year to reach an agreement. The system is planned to be in operation by 2013.
The project is designed to cut European dependence on the US GPS service, and make it easier and cheaper for businesses and consumers to benefit from sat-nav applications.
The EU's executive had previously said that if agreement was not reached by January 2008, the Galileo project would be dead.
The project had run into trouble earlier this year when the private consortium supposed to build most of Galileo's infrastructure collapsed.
The EU will now refinance the project with its own funds.