Formula One teams and manufacturers voted unanimously on Thursday to end development of the current engines after this season in a move that paves the way for Bed Bull to continue using Honda-designed power units.
Honda is leaving the sport at the end of 2021 and Red Bull had said its use of the Japanese manufacturer's engines beyond then depended on a 'freeze' because it could not afford to develop them.
The next generation of Formula One engines is due to be introduced in 2025.
The governing FIA hailed the vote at a virtual Formula One commission meeting as "a significant development for the sport" that reflected "the unity and collaborative spirit between the FIA, Formula One and the teams."
Formula One is due to introduce major aerodynamic changes next year, shaking up the sport that has been dominated by Mercedes since the introduction of the V6 turbo hybrid engines in 2014.
Red Bull would have been faced with a choice of switching to Renault engines, the default position since they supply the fewest number of teams, continue with an increasingly uncompetitive unit or depart.
READ: Portugal set to take vacant slot on F1 calendar in May
Honda has said it plans to continue developing the engine, which won three of the 17 races last year with Red Bull and sister team AlphaTauri, in 2021.
The FIA said a new power unit to be used from 2025 would need to be "powerful and emotive", have environmental sustainability, cost less and be attractive to manufacturers wishing to enter the sport.
It would also have to use fully sustainable fuel. The FIA confirmed also that Portugal was set to fill the empty third slot on this year's calendar left vacant by Vietnam.
"It is the intention of Formula One to fill the position with a race in Portugal on the dates already held in the calendar. The final agreement is still subject to contract with the promoter," it said.
There was no immediate green light for the idea of holding 'sprint' races on Saturdays at some grands prix, as a new way of qualifying for Sunday's main event and with championship points awarded, although teams were supportive.
"All teams recognised the major importance of engaging fans in new and innovative ways to ensure an even more exciting weekend format," the FIA said.
"There was, therefore, broad support from all parties for a new qualifying format at some races, and a working group has been tasked with creating a complete plan with the aim to reach a final decision before the start for the 2021 Championship."
The number of days allocated for tyre testing was increased from 25 to 30 this year at Pirelli's request, with Formula One switching to 18-inch tyres in 2022.
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