According to the BBC, a “three-pronged” agreement has been reached after late night talks in Brussels.
The leaders said private banks holding Greek debt had accepted a loss of 50% on their bond holdings as part of the deal.
Banks must also raise more capital to protect them against losses resulting from any future government defaults.
The deal also approved a mechanism to boost the eurozone’s main bailout fund to €1tr (£880bn).
The framework for the new fund is to be put in place in November.
“The eurozone has adopted a credible and ambitious response to the debt crisis,” French President Nicolas Sarkozy said at a news conference early this morning.
Leaders of the 17 eurozone nations had been in meetings since Wednesday trying to hammer out a deal to help Greece put its national finances in order and underpin other European economies such as Italy.
Because banks have agreed to shoulder losses on Greek bonds, the country’s burden has been reduced, cutting its debt down to 120% of its gross domestic product by 2020.
Greek Prime Minister George Papandreou hailed the deal, saying: “We can claim that a new day has come for Greece, and not only for Greece but also for Europe.”
The news lifted the euro against the dollar, with the single currency up around 0.75% to $1.4013.
