Prime Minister Viktor Orban will have a month to respond to commission concerns over measures involving the country's central bank, data protection and the judiciary, the BBC reported.
"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.
"We hoped the Hungarian authorities would make the changes necessary to respect European law. This has not happened so far."
The commission can impose fines and take Hungary to the European Court of Justice.
The changes, part of a new constitution that took effect Jan. 1, would give the government greater say in naming central bank officials, a move critics say would put the bank's independence at risk.
Critics also say they're concerned the country's new data-protection authority would be heavily influenced by Orban's party, Fidesz, which holds a two-thirds majority in parliament. Critics also assert a plan to force hundreds of judges to retire early would reduce the judiciary's independence because new pro-Fidesz appointees could replace the retiring judges.
Orban calls the criticisms politically motivated.
Olli Rehn, the EU Economic and Monetary Affairs commissioner, has warned Hungary could face a suspension of EU funds for regional projects.
Rehn said Tuesday Hungary must "review all relevant legislation" on the central bank before formal negotiations on requested aid from the EU and the International Monetary Fund could begin.
Meanwhile, anticipated EU action has fed a far-right political party's calls for Hungary to leave the EU, Voice of America reported.
As many as 2,000 demonstrators demanded Saturday the country leave the EU during a protest of the Movement for a Better Hungary party, or Jobbik, and some waved flags of Hungary's pro-Nazi regime during World War II.
The party is known for its perceived anti-Semitic rhetoric and threats against Gypsies.