Premier League to introduce home-grown quota
It said the 20 clubs had agreed the change, effective from the start of the 2010/2011 campaign.
"As of next season, clubs will be required to have a squad named of up to 25 players, of which no more than 17 can be over the age of 21 and not home grown," chief executive Peter Scudamore told league's website.
"The definition of home grown is trained for three years under the age of 21 by somebody in the English and Welsh professional system."
Clubs would have to name 25 players at the end of August when the transfer window closed and again at the end of January.
Scudamore said the England team would ultimately benefit from the change.
"It's not in the clubs' interest to stockpile players," he said. "It will make buying home-grown talent more attractive.
"We're not going down the route of a nationality test but what this will mean is that you just can't buy a team from abroad.
"We think it will give clubs an extra incentive to invest in youth. We think that one of the benefits will be that it will help the England team," he added.
Liverpool's Spanish manager Rafa Benitez expressed some concerns, however.
"For a lot of clubs it will be easy, for the top five maybe to bring in eight local players of quality means you will have to bring them through the academy system which normally does not produce too many in England.
"The problem in England is that in between the academy and the first team there is a big gap. It will be difficult to bring in some quality but ok we will try. The question is not the number of players, that is very easy."
The Premier League said its members' academies have 320 players aged 16 to 18 and a further 2,486 under 16.