EU laws will continue to apply in the UK even after Brexit as part of any transition deal, President of the EU Council Joseph Muscat has warned, noting that European institutions should still be the governing bodies during the transition.

Speaking to journalists in Valletta, he said having the EU court in charge was an essential part of any deal for Brexit. "It is not a transition period where British institutions take over, but it is a transition period where the European court of justice is still in charge of dishing out judgments and points of view."

He added that the European Court of Justice [ECJ) will have to continue to be in charge if the UK wanted transitional deals to allow key sectors to adapt to changes post-Brexit.

This could effectively mean that Britain will continue to remain under European courts' jurisdiction well into the 2020s, The Times noted. The transitional period is expected to take five years after the formal parting from the EU, which is expected to take place in 2019, the newspaper said.

In what could only be seen as a warning to Prime Minister Theresa May, Muscat said that while it was impossible to predict how long the transition period will be, it was not in any party's interest to "try to play the game that we have very long negotiations and in the meantime have the cake and eat it."

This is the first time a senior EU official has made it clear that the ECJ must be part of any transition deal struck between the UK and the bloc.

City of London to be part of transition deal

Protesters in London wearing judges' wigs and robes ahead of the challenge against a court ruling on Brexit. Toby Melville/ Reuters

Muscat, Malta's prime minister, has just taken over the EU's rotating presidency. He said that it was also "quite obvious" that the City of London could be in line for a transition deal.

In allaying the City's fears of a hard Brexit, Muscat said: "Nobody is out to destroy the British economy. It is in nobody's interest."

The EU president further made it clear that the final exit deal has to be made before October 2018 to allow the European parliament to ratify it "in a couple of months maximum."

This would mean that Brexit talks will have to be wrapped up in less than two years, if the UK sticks to May's timetable of triggering Article 50 by the end of March 2017.

The Guardian said that the Malta government shared the view of several European leaders in believing that the UK must leave the EU before the next round of European elections, scheduled to take place in the spring of 2019.

EU Parliament has to be involved in Brexit talks

Muscat, a former MEP, also said that the European parliament has to be involved in the Brexit talks right from the start. He warned that a Brexit deal will fail if there is "an unholy alliance" of MEPs from different political parties.

"However good and fair a deal is negotiated ... there might be an unholy alliance of unlikely bedfellows in the European parliament that for different reasons would scupper the deal and that would be a crisis.

"We would be really playing with fire if the European parliament is not part of the wider workings of the deal," he said. The European parliament, which comprises of 751 MEPs has to give its consent to any Brexit deal.

Muscat also pointed out that the UK is unlikely to get a deal that was better than when Britain was in the bloc. "It would be quite stupid to settle for EU membership ourselves if it is then inferior to the Brexit arrangements. That is something that is keeping us together," he said.