A top European Union official signaled a fresh retreat on Europe's controversial financial-transactions tax Tuesday, saying the EU's executive arm could live with a watered-down version of the proposal.

The concession is the latest in a series of setbacks for a proposal that has been fiercely opposed by the financial industry and some EU member states. Last week, the European Commission admitted the tax would be delayed by at least six months, as the 11 participating countries continue to squabble over key questions, including the scope of the levy.