European Commission chief Ursula von der Leyen on Wednesday warned Hungary’s government it faced legal action and possible funding cuts if it does not reconsider its law that bans information about homosexuality and transgender people to the under 18s.
The Anti-Paedophilia Act was originally billed as toughening punishments for child abuse.
But its final draft contains amendments that critics say conflates paedophilia with homosexuality and stigmatises support for the LGBTQ community.
"It is a disgrace this legislation ... It is something that flies in the face of the values of the European Union," von der Leyen told the European Parliament in Strasbourg.
"If Hungary does not rectify the situation, the commission will use its powers available as the guardian of the treaties," she added.
The commission is understood to be weighing up legal action against Hungary and is considering making post-Covid recovery grants dependent on a repeal of the law which is scheduled to come into effect on Thursday.
Viktor Orban, Hungary's prime minister, insists the legislation is vital to protect children.
And he is likely to defy the power brokers in Brussels even though it could potentially cost his country a chunky slice from a 750 billion euro recovery fund.
Paolo Gentiloni, the EU's economics affairs, said on Wednesday that discussions to approve Hungary's seven billion euro allocation were underway.
The process, he said, included questions over Hungary's commitment to fighting corruption and ensuring transparency as well as the independence of the courts.
Judit Varga, the Hungarian justice minister, denounced the issues as new demands that were related to the new law.
"Brussels can't take away for any political reason what Hungarian people have worked for," she tweeted.
MEPs mostly backed von der Leyen's tough words for Orban and her threat of legal proceedings, though farright lawmakers said they supported the Hungarian law.
Nicolas Bay, an MEP from France's National Rally party, called the targeting of Hungary scandalous.
"Hungary wants to protect its children against the delusion of gender theory. Budapest is right," he said.