By Laurence Norman and Jenny Gross 

BRUSSELS--European leaders agreed to advance Brexit negotiations but called on U.K. Prime Minister Theresa May to tell them quickly what her government wants from a future trade agreement so serious talks can start in March.

A week after reaching an agreement on the terms of Britain's departure from the bloc, EU leaders decided Friday to allow talks to progress to the bloc's future relationship with the U.K.

"Today is an important step on the road to delivering a smooth and orderly Brexit and forging our deep and special future partnership," Mrs. May responded on Twitter.

However, Maltese Prime Minister Joseph Muscat said the next step is for the U.K. to say "very clearly what it wants" from talks. "I think if this happens in the next few weeks, we can start in earnest and by March we can have a very clear European position."

The U.K. government has been divided over what sort of relationship it wants with the EU, and what compromises pro-Brexit forces are willing to make to maintain close trade ties with the bloc.

Mrs. May is set to hold the first of what is expected to be several cabinet meetings on Tuesday to decide the shape of Britain's demands for a future trade agreement.

Until now, the government has been clear it wants Britain to leave the EU's single market and customs union, and to narrow the influence in Britain of EU courts.

Dutch Prime Minister Mark Rutte warned that the economic impact of Britain leaving the EU's single market would be "huge," placing the U.K.'s financial sector--which would lose its ability to operate automatically across the bloc--at a "considerable disadvantage."

Mrs. May has in recent months struggled to quell dissension from members of her top team, made up of both pro- and anti-EU politicians.

Foreign Secretary Boris Johnson, one of the leaders of the campaign to leave the EU, in September undercut Mrs. May by laying out his own vision including a definitive break from EU rules several days before she was set to make a keynote speech. Senior officials have also clashed over immigration policy and over whether Britain should accept all of its current EU obligations during a two-year post-Brexit transition.

Mrs. May and her top team must determine how closely Britain plans to align itself with EU trade rules and standards in the future. Close alignment could help deliver a solid trade accord and may ease specific challenges, like how to avoid a hard border with Ireland.

One question hovering over the forthcoming debate: where Mrs. May herself stands on this critical issue. She has kept her views largely private so far, officials say.

Supporters of a clean break with the EU argue that only through a shift away from the bloc's rules can Britain hope to start locking in trade deals with other major economies that will bolster the U.K.'s economic future.

Shortly after the leaders' decision, the bloc released negotiating guidelines that confirmed a timeline for the coming talks. They said that formal negotiations on a transition can begin in January but that negotiations on the future trade agreement must await until at least March, when the bloc plans to give a more detailed negotiating mandate to the EU's chief negotiator, Michel Barnier.

European Council President Donald Tusk confirmed Friday that there could be informal, exploratory talks in coming weeks to help provide clarity ahead of the formal trade talks. However, European Commission President Jean-Claude Juncker said "the real negotiations" would start only after March.

Some leaders warned about a rocky path ahead. Austrian Chancellor Christian Kern raised questions about whether thorny questions over Ireland have really been settled. "If there can't be a border between Northern Ireland and the U.K. and no border between Ireland and Northern Ireland, even school children can see that's a riddle that still needs to be solved," he said.

On Friday afternoon, French President Emmanuel Macron said the bloc's priorities for the second phase of negotiations were "solidarity with Ireland, as we showed in phase one, and the integrity of the single market." EU leaders have been clear that Britain's access to the EU's markets must be constrained if there are restrictions on EU workers moving to the U.K.

Leaders still need to produce a legal text for last week's agreement on important divorce terms between the EU and Britain. EU officials warned that the speed of agreeing that text could affect the pace with which talks on a transition and a future trade agreement proceed.

On Wednesday, Mrs. May suffered her most serious legislative setback since Britain triggered its exit from the U.K., when members of her Conservative party joined opposition lawmakers and voted to guarantee the British Parliament the power to vote on whether to accept any final Brexit deal.

Valentina Pop and Emre Peker contributed to this article.

Write to Laurence Norman at laurence.norman@wsj.com and Jenny Gross at jenny.gross@wsj.com

(END) Dow Jones Newswires

December 15, 2017 10:27 ET (15:27 GMT)