The decision is a compromise with Conservative lawmakers who last week rebelled in parliament and inflicted an embarrassing defeat on May during a debate on the legislation which will end Britain's European Union membership.
The European Union's chief Brexit negotiator said Wednesday that Britain should have less than two years as a transition period after it leaves the European Union and that the United Kingdom would have to live by all the key EU principles.
Rulings of the European Court of Justice will continue to apply, the EU said.
This means a transition period of 21 months from the end of the Article 50 expiry on March 29th 2019 until the United Kingdom is fully out of the European Union on the first day of 2021.
British Prime Minister Theresa May had asked for the transition to last around two years.
"From our point of view the logical end should be December 21, 2020", Barnier said at a press conference in Brussels as he presented the new Brexit negotiating guidelines produced by the commission, the EU's executive arm.
Brexit Secretary David Davis is on record as saying he wants Britain's free trade deal to be "Canada plus plus" and include financial services.More news: 6 killed, 22 people hospitalized in USA train derailment
In a move that will please many Brexit supporters, she ruled out the option of a Norway-style membership of the European Economic Area as "democratically unsustainable" because it would mean the United Kingdom having automatically to observe rules and regulations which it had no influence over.
The next phase comes as Barnier ruffled feathers in London on Tuesday with a warning that any ties after Brexit would inevitably result in Britain's financial companies losing full rights to trade across the bloc.
But May faces difficulties merely getting Brexit through parliament, after suffering a humiliating defeat last week by pro-European members of her own Conservative party, who voted to ensure parliament has the final say on any divorce deal with Brussels.
They were still outnumbered by the 230,000 European Union citizens who arrived to live in Britain in the same period, although that figure was down 19 percent on the previous year.
Europe has set a target date for when Brexit will really hit.
Leading conservative lawmaker Jacob Rees-Mogg slammed this demand as "rather hostile", leaving the United Kingdom "no more than a vassal state, a colony, a serf of the European Union". But they present the risk that, in the event of a financial crisis, funds are quickly repatriated to the foreign bank's headquarters - leaving customers of the United Kingdom branch out of pocket.