The European Parliament on Wednesday voted for disciplinary action against Hungary for failing to comply with fundamental EU values of democracy and freedom.
MEPs backed the motion by 448 votes to 197 with 48 abstentions.
This is the first time that the parliament has launched the EU's disciplinary process against a member state, known as Article 7. To formally launch the sanctions, a majority of four-fifths is needed to back the proposal.
Addressing MEPs on Tuesday, Hungarian Prime Minister Viktor Orban accused the European Parliament of factual inaccuracies and "insulting" his citizens.
Orban said the vote is an act of revenge against Hungary for refusing to take in refugees under an EU-wide resettlement quota scheme.
Although theoretically the process can lead to suspension of a country’s voting rights, this sanction would require unanimous backing from other states, which is highly unlikely with Poland blocking it.
The action was initiated by Dutch Green MEP Judith Sargentini's report which found that Orban's attacks on independent media, academics, the judiciary, migrants and refugees and the rights of minorities pose a "systemic threat" to the EU's fundamental principles.