The European Union is prepared to countenance a Brexit transition period longer than the two years initially envisaged, RTÉ News understands.

According to a draft document setting out how the transition will work, the EU will signal that a transition period extending beyond December 2020 may be possible.

The development comes as British Prime Minster Theresa May reportedly faces a Eurosceptic rebellion over the notional two-year transition period.

At a House of Commons committee hearing today, Eurosceptic MP Jacob Rees-Mogg said that if Britain remained subject to EU rules for a two-year period beyond the exit date of 30 March 2019, without having any participation in the rule-making process, then it would be reduced to a "vassal state".

However, according to the EU's draft negotiating directives, which will legally underpin the transition period, the door will be left open to an even longer transition period.

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According to one EU source, draft minutes to be attached to the negotiating directives will spell out that the directives "will remain under close review" and that member states will be "ready to update them when necessary".

RTÉ News understands that some Eastern European states pushed for this signal to be recorded in the minutes during a meeting of EU ambassadors in Brussels, in which the draft negotiating directives were finalised.

It is understood the minutes are a "cryptic" way to allow the EU to extend the transition period at short notice.

However, another EU source suggested that a longer transition period is "implied" within the negotiating directives.

The Government is in favour a longer transition period, as it would put off the most difficult challenges around avoiding a hard border in Ireland.

Minister for Foreign Affairs Simon Coveney has said the transition period should last for five years.

During her Florence speech in September, Mrs May conceded the need for a transition period, the length of which was unspecified.

EU Chief Brexit negotiator Michel Barnier recently said the transition should not need to go beyond 31 December 2020.

If the transition is extended, it would have immediate complications for the EU's long-term budget, which will run for seven years from 2021.

Negotiations between the EU27 are getting under way on how to manage the seven-year budget, with member states having to figure out how to make up a €12.5 billion shortfall due to the UK's departure.

Should the UK stay in a longer transition period, it will effectively keep the country in the budget cycle.

The transition will be a so-called "stand still" arrangement, meaning that the UK will have to abide by all of the EU rules and obligations, without having any MEPs or any presence at EU ministerial councils.

The draft negotiating directives are expected to be adopted by EU Foreign and European Affairs ministers when they meet in Brussels on Monday.

It is also understood that the UK will have to remain within the Common Fisheries Policy (CFP) during the transition period.

According to the directives, the UK will have to abide by EU rules governing the Total Allowable Catch, known as the TACs, which, under the CFP, limit what EU member states can catch in terms of individual fish species.

While these are negotiated by fisheries ministers each December, the UK will not be allowed to have any ministers present at those meetings during the transition period.

The EU will, however, according to the negotiating directives, create a consultation mechanism with the UK on how fisheries are managed during the transition.

The obligation will likely enrage UK fishing organisations, who lobbied hard for a Leave vote in the belief that the UK would be immediately out of the Common Fisheries Policy and be entitled to take much bigger quotes of fish from British waters.

Irish fisheries groups have expressed alarm that, post Brexit, some fleets would face restrictions from British waters, which have traditionally been highly lucrative sources of revenue for mackerel and prawn fleets.