NATO chief Jens Stoltenberg welcomed the breakthrough, which comes after several weeks of talks between military officials from the two alliance members.

The two NATO members agreed to the talks after a standoff over gas exploration in contested waters led to a dramatic ramping-up of tensions, stoking fears that conflict could erupt, perhaps by accident.

"Following a series of technical meetings between the military representatives of Greece and Turkey at NATO Headquarters in Brussels, a bilateral military de-confliction mechanism was established on Thursday," NATO said in a statement.

"The mechanism is designed to reduce the risk of incidents and accidents in the Eastern Mediterranean. It includes the creation of a hotline between Greece and Turkey, to facilitate de-confliction at sea or in the air."

Tensions between Greece and Turkey have eased somewhat in the last couple of weeks and the two governments have agreed to begin exploratory talks to resolve their dispute.

Stoltenberg thanked both sides for their "constructive engagement".

"This safety mechanism can help to create the space for diplomatic efforts to address the underlying dispute and we stand ready to develop it further," Stoltenberg said.

The announcement of the breakthrough came as EU leaders began tough summit talks on their relations with Turkey.