Labour will now challenge whoever wins the Conservative Party leadership race and becomes the next prime minister to put any deal they strike with the EU to a referendum, "with remain on the ballot, in which Labour would campaign for remain," the party said in a statement.
The issue has deeply divided the party. Many of its supporters in working-class areas voted to leave the EU in the Brexit referendum of 2016. But the majority of Labour MPs strongly support remaining in the European bloc.
Party leader Jeremy Corbyn, a veteran eurosceptic, had long resisted strong pressure to back another vote. But he relented after Labour-affiliated trade unions agreed on Monday to support the move.
Labour will now back remaining in the EU over leaving without a deal or supporting a Conservative-brokered deal. Yet what it will do if it takes power before Britain has left is dependent on what type of deal it could agree with Brussels.
The party's previous policy was to respect the 2016 referendum, but the chaotic process of leaving the EU has emboldened those hoping to stay in.
"As democrats, Labour accepted the result of the 2016 referendum," Corbyn wrote in an email to party members.
- Fear over 'no deal' divorce -
"In our 2017 manifesto, Labour also committed to oppose a No Deal Brexit and the Tories' Brexit plans," he added, calling on the incoming prime minister to hold a general election.
Conservative Prime Minister Theresa May is stepping down this month after failing to get her EU divorce plan through parliament.
The two men vying to replace her, Boris Johnson and Jeremy Hunt, have both said they are willing to take Britain out of the EU with no deal on October 31.
However, the majority of members of parliament -- including Labour -- are against a "no deal" option, fearing dire economic consequences.
Neither Hunt nor Johnson supports the idea of a second referendum.
If the political deadlock continues, many in Westminster believe a snap election is inevitable.
In Brussels, Britain's Brexit Secretary Stephen Barclay tweeted that he had "constructive talks" with the EU's chief Brexit negotiator Michel Barnier.
"I raised the cross-party support for protecting UK and EU citizens' rights in all scenarios," Barclay said after his meeting at EU headquarters on Tuesday.
"I set out our ongoing work on alternative arrangements and we agreed to continue dialogue."
Barclay warned Monday the EU must reopen the withdrawal agreement reached with May but rejected by MPs, so as to avoid a "disruptive" no-deal divorce in October.
EU officials including Barnier have repeatedly ruled out renegotiating the deal.