The EU's 28 foreign ministers reached the decision unanimously at their monthly meeting, swiftly swaying the last nations that had any doubts.
It came after prolonged diplomatic pressure from Washington and Israel, who both consider Hezbollah a terrorist organisation.
The blacklisting would mean imposing visa bans on individuals and asset freezes on organisations associated with the group.
"It is good that the EU has decided to call Hezbollah what it is- a terrorist organisation," said Dutch Foreign Minister Frans Timmermans.
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But the implementation would be complicated since officials would have to unravel the links between the different wings within Hezbollah's organisational network and see who could be targeted for belonging to the military wing.
It could take up to two weeks before names of individuals and organisations are added to the list, officials said.
The Iranian-backed group plays a pivotal role in Lebanese politics, dominating the government since 2011, and has since sent its members to bolster Syria's President Bashar Assad forces in their assault of rebel-held areas.
Israel welcomed the decision. It fought a bitter month-long war with Hezbollah in 2006 and does not differentiate between the groups political and military wings.
Israel has accused Hezbollah of carrying out attacks on Jewish and Israeli targets around the world. Hezbollah has denied involvement in some and not commented on others.
"Finally, after years of deliberations, the claim that Hezbollah is a legitimate political party has rightfully failed," said Israel's Justice Minister Tzipi Livni adding, "Now it is clear to the entire world that Hezbollah is a terrorist organisation".