The European Commission warns Hungary that it faces legal action if it fails to change reforms to its central bank, data protection and judiciary.
Hungary’s PM Viktor Orban was given a month to respond, Reuters news agency reports.
Critics say the new central bank law puts the bank’s independence at risk. It allows Viktor Orban to install a new deputy governor.
Viktor Orban’s conservative Fidesz party has a two-thirds majority in parliament.
The European Commission launched an “infringement procedure” against Hungary on Tuesday, the first stage of which is a warning calling for changes to the controversial laws.
“We do not want a shadow of doubt on respect for democratic principles and values to remain over the country any longer,” Commission President Jose Manuel Barroso said.
There are fears that a new data protection authority will come under Fidesz influence and that a plan to make hundreds of judges retire early will undermine the judiciary’s independence by enabling new pro-Fidesz appointees to replace them.
The European Commission can go as far as imposing fines and taking Hungary to the European Court of Justice.
Thousands of Hungarians have demonstrated over what they see as Fidesz authoritarianism. A new media authority set up by Fidesz is also highly controversial.
The changes are part of a new constitution which took effect on 1 January.
Viktor Orban says the criticisms are politically motivated. He argues that partisan bickering has for too long handicapped Hungarian politics and that the last vestiges of communist influence need to be rooted out.
Correspondents say a compromise may be found because Hungary is struggling to service its debts and wants to reach a new deal with the EU and International Monetary Fund on a standby loan.
Hungary’s total debt has risen to 82% of its output, while its currency, the forint, has fallen to record lows against the euro.
The EU Economic and Monetary Affairs Commissioner, Olli Rehn, has already warned that Hungary could face a suspension of EU cohesion funds – support for regional projects.
Nearly a year ago a row between Hungary and the Commission was defused when Viktor Orban’s government agreed to amend the wording of the new media law, in the sections on balanced reporting, country of origin and media registration.