The Energy Charter Treaty "is no longer compatible" with the European Union's goals on striving for a greener, carbon-neutral future, the commission said in a statement.
While the commission had been pushing for an overhaul of the treaty, that did not get enough backing from the EU's 27 member states.
"An unmodernised treaty is simply not in line with the EU's sustainable vision of the future, and the investments that are needed for a clean energy transition," EU energy commissioner Kadri Simson said.
The treaty, which the EU and Euratom, the European atomic energy community, signed on to in 1994 came into effect in 1998 and currently has some 50 signatories.
Initially it sought to bring post-Soviet eastern European energy sectors into a cooperative framework with western European ones.
To do that, it allowed energy companies -- many of them using coal and other fossil fuels -- to sue governments over policies putting their investments at risk.
But as the EU, and indeed much of the world, has shifted towards renewable and more sustainable energy sources, several European governments baulked at remaining part of the treaty.
Italy, which lost a costly arbitration case against a British oil company, Rockhopper, under the treaty, announced its withdrawal in 2015.
Other EU countries -- Germany, France, Luxembourg, the Netherlands, Poland and Spain -- subsequently announced they would do the same, or were thinking of doing so.
That left the commission with no choice but to announce Friday its plan for a "coordinated withdrawal" from the Energy Charter Treaty.
The move would affect the EU, the member states and Euratom and would apply in an "orderly manner, to ensure the equal treatment of investors across the EU and beyond," the statement said.
"It's time for Europe to withdraw from this treaty, and to put all of our focus on building an efficient and competitive energy system that promotes and protects renewable energy investments," said Frans Timmermans, the commission's vice president in charge of the EU's Green Deal.
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