Brussels filed a case against the country's far-right government at the European Court of Justice, the bloc's top court, on Thursday.
The Commission says the law, which also clamps down on the right of people to claim asylum in Hungary, breaches fundamental rights that Hungary has signed up to as an EU member state.
Prime minister Viktor Orban's ruling Fidesz party has dubbed the legislation to criminalise assistance of refugees the "Stop Soros" law, a reference to George Soros, the US philanthropist who funds liberal causes.
Fidesz has run a hate campaign against the Jewish billionaire, claiming that he is behind all manner of ills in the country - a campaign which observers have noted bears many tell-tale hallmarks of antisemitism.
“The Hungarian legislation curtails asylum applicants’ right to communicate with and be assisted by relevant national, international and non-governmental organizations by criminalising support to asylum applications,” a European Commission spokesperson said in a statement.
“Additional inadmissibility grounds for asylum applications ... curtail the right to asylum in a way that is not compatible with EU or international law.”
If Hungary loses the court case it could face hefty fines. The payments would be on top of plans by some EU member states to cut off EU aid to the member state if it refuses to uphold the union's democratic values and human rights.
The law is just one of a series of measures Hungary's government has brought in recent years targeting free expression, the media, academics, NGOs, and above all, foreigners.
Mr Orban has explicitly said he wants to end liberal democracy in Hungary, and that he prefers the idea of "Christian democracy".
In May the UN's humanitarian agency sounded the alarm over Hungarian authorities starving asylum seekers of food for up to five days at a time. The European Commission also sent a letter of formal notice to Hungary regarding this issue, stating that it was opening up a probe.
A spokesperson for Viktor Orban said: "Reports say that the outgoing European Commission has turned to the incoming Commission regarding our “Stop Soros” legislative package and constitutional amendment. We are fully prepared to defend them.
"The Hungarian voters at the referendum, the national and European parliamentary elections — have spoken loudly and clearly that they do not support immigration and want to protect Europe’s Christian culture.
"The these laws serve that purpose - they make it a criminal act to be funding or assisting illegal migration & the constitutional amendment would forbid the mass settlement of immigrants in Hungary.
"They comply with the Geneva, Schengen and Dublin accords, but we’re not surprised that the pro-immigration parties attack them."
The Independent
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