In a vote on Wednesday MEPs approved an amendment to a budgetary report that the EU money "should not be used for the financing of lethal bullfighting activities".
The largely symbolic vote not to spend farm subsidies that could profit the raising of cattle for bullfighting was passed 438-199 with 50 abstentions.
The EU's common farm policy does not specifically allocate money to bullfighting or raising fighting bulls, but general farming subsidies can end up being used for breeding bulls in Spain, Portugal and France.
But more than €125 million ($138m) in EU agricultural subsidies are estimated at being used to raise bulls for bullfights each year.
The vote was hailed as victory by animal rights groups.
"This is a hugely significant decision that could be the final nail in the coffin for Spain's already struggling bullfighting industry", said Mimi Bekhechi, the director of Peta.
"Tormenting bulls for entertainment belongs to the Dark Ages, not the 21st century, and today we're one giant step closer to relegating this cruel pastime to the dustbin of history," she said.
A statement from the animal rights group added: "As bullrings increasingly stand empty and fewer and fewer Spaniards show any interest in attending the violent events, government handouts are the only thing keeping this cruel 'tradition' alive."