The report says the pace of reforms in Turkey has slowed, and calls for urgent steps to ensure freedom of speech.
But it stops short of recommending any slowing or freezing of membership negotiations with Turkey.
The Commission also says it will step up scrutiny of all candidate countries' political reforms in future.
There will be a "closer link" between these reforms and the pace of entry talks, it says in its annual review of progress made by states queuing up to join the bloc.
Turkey is likely to be told that it has one last chance to open its ports to ships and planes from Cyprus, reports the BBC's Mark Mardell.
If it doesn't do so, EU leaders will have to decide next month whether to call off some of the talks.
The precise wording has yet to be decided, but the draft text does say Turkey has made no progress towards normalisation of relations with Cyprus, which joined the EU in May 2004.
An EU summit in December is expected to discuss a possible suspension of membership talks if there is no progress by then, but the Commission is keen to avoid jeopardising Finnish-led negotiations on the Cyprus issue now.
The report includes a long list of other problems Turkey has to address.
It says Ankara must ensure freedom of expression "without delay" by repealing or amending article 301 of the penal code, which has led to the prosecution of numerous writers for "insulting Turkishness".
It also raises serious concerns about allegations of torture, freedom of religion, women's and trade union rights, civilian control over the military, and the rights and freedoms of the Kurdish population.
The European Commission says the 2004 enlargement of the EU, which took membership from 15 to 25 states, has been a "considerable success" increasing prosperity across the bloc.
However, it says there will not be another "big bang" expansion, when several countries join at once.
Bulgaria and Romania are due to join in January 2007, but the Commission says "a new institutional settlement" streamlining the way the EU operates should have been reached before any further members can join.
Officials emphasise that reaching an institutional settlement does not necessarily mean passing the constitution, which was voted down by voters in French and Dutch referendums last year.
They also insist that Croatia could still join the EU by the end of the decade.
Another Commission report to be issued on Wednesday on the EU's capacity to absorb new members, avoids setting geographical limits to the EU.
Correspondents say it gives some hope to would-be members such as Ukraine or Moldova - but stresses that keeping its promises to existing candidates in the Balkans and Turkey is a higher priority.