The ESA Aeolus Earth observation satellite fired its thrusters as part of a 'collision avoidance maneuver,' according to a statement from ESA.
In its original path lay a satellite owned by Elon Musk's SpaceX that is part of the company's Starlink system, which aims to set up a constellation of thousands of satellites capable of beaming internet to every corner of the Earth.
ESA contacted Starlink, which said it did not plan to move its satellite, according to the statement, so the ESA team decided to increase the altitude of its Aeolus satellite to avoid a collision.
The maneuver took place around half an orbit before the potential collision, according to ESA.
CNN has contacted SpaceX for comment.
'It is very rare to perform collision avoidance manoeuvres with active satellites,' said ESA in a tweet.
'The vast majority of ESA avoidance manoeuvres are the result of dead satellites or fragments from previous collisions.'
These maneuvers take a long time to execute, and it will soon become impossible to manually avoid collisions in space as the number of satellites increases steeply, the agency tweeted.
Starlink alone could involve thousands of satellites, and rival internet constellations from Amazon and OneWeb are also in the pipeline.
In response, ESA is working on an artificial intelligence (AI) system to automate the process of avoiding collisions in space.
'No one was at fault here, but this example does show the urgent need for proper space traffic management, with clear communication protocols and more automation,' Holger Krag, Head of Space Safety at ESA, said in a statement.
'This is how air traffic control has worked for many decades, and now space operators need to get together to define automated manoeuvre coordination.'
The trade-off for increased satellite traffic in space will be low-cost internet for a significant portion of the world's population that isn't yet online, according to SpaceX.
However, getting the satellite constellation up and running will cost around $10 billion and will involve 12 rocket launches to get satellites into position, Musk said before the first Starlink satellite launch in May.