The aim of this paper is to make conclusions regarding the allocation of EU structural funds in the programming period 2004-2006 in Latvian regions as well as to give suggestions for the optimization of allocation of EU cohesion policy financing in Latvian regions. Data of the allocation of EU structural funds in the programming period 2004-2006 shows that the allocation is proportional to distribution of inhabitants in the regions and that the highest amount of financing and the highest financing per capita has been received by the most developed regions. Using the methodology which was designed to allocate EU funds in the programming period 2007-2013 between NUTS II regions and regional development indicators the allocation of EU funds in Latvian NUTS III regions has been calculated. The proposed methodology allocates higher financing per capita to less developed regions and eliminates situation where the allocation is proportional to the distribution of inhabitants in the regions. The concentration of development in specific territories prevents full usage of the growth potential of Latvia’s territory thus hampering sustainable regional development. Therefore the application of proposed methodology would facilitate the implementation of main principles of the cohesion policy in practice by promoting development in less developed regions and thus increasing the quality of life and competitiveness in the whole territory of state. At the same time the establishment of regional quotas requires significant changes in the national EU funds management system by introducing EU funds regional programmes.