The proposal, due to take effect from 2013, would give fleets quota shares guaranteed for at least 15 years.
"Discards" will be phased out - the practice whereby up to half the catch of some fish is thrown back into the sea to avoid going above the quota.
The environmental group Oceana said the plan had "some positive" aspects but stronger measures were needed.
It called the plan "an incomplete work that does not provide the urgently needed strong solutions to restore European seas and ensure the long-term sustainability of fishing".
The Common Fisheries Policy has been in effect for 28 years, but Maritime and Fisheries Commissioner Maria Damanaki says it has been a failure.
"There is overfishing; we have 75% overfishing of our stocks and comparing ourselves to other countries we cannot be happy," Ms Damanaki told BBC Radio Four's Today programme.
"So we have to change. Let me put it straight - we cannot afford business as usual any more because the stocks are really collapsing."
There will be hard bargaining by the European Parliament and EU member states' governments before the new policy is adopted.
Restoring stocks
The Commission says that in the Mediterranean 82% of fish stocks are overfished, while in the Atlantic the figure is 63%.
Under the new scheme, boats are expected to land all the fish caught, and the whole catch would count against quotas. This would apply to species including mackerel, herring and tuna from the beginning of 2014.
Cod, hake and sole would follow a year later, with virtually every other commercial species coming under the regulation from 2016.
The reform also includes plans to restore fish stocks over the long term and allow EU member states to set incentives for the use of selective fishing gear.
The Commission says too many detailed decisions on fisheries have been made by Brussels. It now says it wants to hand back more decision-making powers to member states, so that the industry tailors its actions to local conditions.
"Today, by virtue of the co-decision procedure, even the most detailed technical decisions... have to be taken at the highest political level in the European machinery," Ms Damanaki complained.
Outlining the new policy, she said "I want to decentralise... the choice of instrument, or instruments' mix, is up to member states, co-operating at regional level".
The plan aims to:
ensure catches are within levels that can "produce the maximum sustainable yields" by 2015implement an "ecosystem-based approach" to limit the impact of fishingreduce fleet overcapacity through market measures rather than subsidiespromote the development of "aquaculture activities" to ensure food security and job opportunitiesdevelop alternative types of fish management techniques.There has been widespread public opposition to discards across the EU, with more than half a million people signing a petition publicised by UK celebrity chef Hugh Fearnley-Whittingstall.
UK Fisheries Minister Richard Benyon called the new commission proposals "a vital first step".
"Because our fisheries are so varied, I don't believe that a one size-fits-all approach... will work effectively. There has to be flexibility to work with the industry to introduce a range of tailored measures."
Catch limitsBertie Armstrong, head of the Scottish Fishermen's Federation, said the EU plan would mean a cut of at least 20% in the size of the Scottish fishing fleet and its crews.
The negotiations were "not going to be easy," said Markus Knigge, policy and research director for the Pew Environment Group's Brussels-based European Marine Programme.
"I do believe that most member states accept that we have to do something, but when it comes to solutions, that can be more difficult to discuss than the failures of the current policy," he told BBC News.
He said there were a number of nations unhappy about particular parts of the proposals, such as the role of scientific advice in the process of setting catch limits.
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