The European Commission on Tuesday said Hungary has made "no progress" on a raft of demands aimed at tackling corruption, bolstering civil society and ensuring media independence.
The damning assessment was contained in the EU executive's annual rule-of-law report for countries in the 27-nation bloc and some hoping to join it.
Hungary's Prime Minister Viktor Orban has long been at loggerheads with Brussels over perceived democratic backsliding by Budapest.
"When it comes to Hungary, we have serious concerns," commission vice president Henna Virkkunen said. "There is a lot of work ahead of us with Hungary."
The EU's report said Budapest had failed to improve its track record on tackling high-level corruption cases, and increasing the freedom of the media.
"Pressure on journalists and other media professionals has increased, as they continue to encounter numerous and serious challenges to their work," the report said.
Meanwhile there was also a "deteriorating environment" for civil society organisations, it said.
The Hungarian government dismissed the report as attempted interference in the country's domestic affairs.
"In truth, this is just the newest chapter in an ongoing effort by the European Commission to dismantle the key achievements of Prime Minister Orban's governments and impose foreign political control over Hungary" government spokesman Zoltan Kovacs posted on X.
The EU has already frozen 18 billion euros ($21 billion) in funds for Hungary as part of various procedures related to concerns about the rights of LGBTQ people and asylum seekers, as well as public procurement conditions and conflicts of interest.
The standoff has intensified further over new legislation from Hungary aimed at restricting LGBTQ rights and an attempt by authorities to ban the Budapest Pride parade last month.
In the end, organisers estimate that over 200,000 people took part in the Pride parade in the Hungarian capital to protest the rollback of LGBTQ rights in the country.
