The European Commission on Wednesday stepped up legal action against Hungary over restrictions on foreign funding likely to affect civil society groups funded by the billionaire investor George Soros.
The EU executive believes the law, passed in June, violates the right to freedom of association and to protection of private life and personal data enshrined in the EU's Charter of Fundamental Rights, as well as breaching the principle of free movement of capital.
Hungary's right-wing prime minister, Viktor Orban, has long criticized organizations funded by the Hungarian-born Soros, accusing them of working as paid activists advocating Soros's political goals, notably by opposing Orban's tough immigration policy.
When Soros in June praised the "courageous way Hungarians have resisted the deception and corruption of the mafia state Orban has established," Orban called it a "declaration of war," and accused Soros of running a mafia-like network.
The Commission expressed its concerns over the law on non-governmental organizations (NGOs) to Budapest in July, the latest in a long line of grievances about what Brussels and many member states see as a track record of flouting fundamental EU values.
"Having carefully analyzed the explanations put forward by Hungary, the European Commission concludes that its serious concerns have not been addressed," it said in Wednesday's statement.
The Commission's next step in the "infringement procedure" is to issue a so-called reasoned opinion, giving Hungary one month to take the requested measures.
"If Hungary fails to reply satisfactorily to the reasoned opinion, then the Commission may refer the case to the Court of Justice of the EU," the statement said.
The Commission has already issued a similar ultimatum to Hungary over an education law that Brussels says infringes academic freedom and could result in the closure of a Budapest university founded by Soros.
Since coming to power in 2010, Orban has eliminated checks on his power by taking control of much of Hungary's media, curbing the powers of the constitutional court and placing loyalists in top positions at public institutions.
While Brussels can open cases against EU states violating common rules, they are lengthy and often have little impact.
That means the EU executive has little leverage over Orban, who has been in office since 2010 and faces an election next year.