EU foreign ministers meeting in Luxembourg on Monday approved a one-year suspension of sanctions against almost 500 individuals and more than 800 firms, but keep an arms embargo in place.
"The situation in the Myanmar is "looking much better" after the "remarkable progress" culminating in opposition leader Aung San Suu Kyi's election to parliament on April 1," a senior EU diplomat who asked not to be identified, said.
But a decision to suspend rather than remove restrictive measures aims to "send a signal that we are continuing to watch", he added.
"It is not set in stone that this [reform] trajectory will continue".
In a first sign of discord, Suu Kyi's party announced on Sunday it would postpone its parliamentary debut in a dispute over the swearing-in oath.