Brussels has referred Hungary to the Court of Justice over "legislation that criminalises activities in support of asylum applications and further restricts the right to request asylum".
The European Commission also accused Budapest of not providing food to people in migrant transit zones on its border with Serbia.
Budapest told Euronews it "is ready for the lawsuit."
'Not compatible with EU law'
The Commission first launched an "infringement procedure" against Hungary over its asylum laws in December 2015 but is taking further action with regards to the so-called "Stop Soros" legislation passed in June of last year.
The law refers to Hungarian-born American billionaire and philanthropist George Soros whom Hungarian Prime Minister Viktor Orban accuses of supporting illegal migration.
"The Hungarian legislation curtails asylum applicants' right to communicate with and be assisted by relevant national, international and non-governmental organisations by criminalising support to asylum applications," said the Commission in a statement.
It also introduced new criteria for eligibility, restricting the right to asylum to people arriving in the country directly from a place where their lives or freedoms are at risk.
"Therefore, these inadmissibility grounds curtail the right to asylum in a way that is not compatible with EU or international law," the Commission added.
Hungary 'ready for the lawsuit'
The government said in an emailed statement to Euronews that it "continues to stand by the "Stop Soros" legislative package" and that it "is ready for the lawsuit."
"The Hungarian people made it clear in a referendum as well as in national and European parliamentary elections that they reject immigration and want to protect European Christian culture.
"The government firmly believes that the “Stop Soros” legislative package and the constitutional amendment reflect the will of the Hungarian people, and also comply with the provisions of the Geneva Conventions, the Schengen Agreement and the Dublin Convention," it added.
Brussels also announced it has sent another letter of formal notice to Budapest over the situation in the transit zones which it said amount to detention. It has in the past called on the European Cout of Justice to take interim measures obliging Hungary to provide food to people detained in the transit zones.
"The Commission finds that the detention conditions in the Hungarian transit zones, in particular, the withholding of food, do not respect the material conditions set out in the Return Directive and the Charter of Fundamental Rights of the European Union," it explained.
Hungary has one month to respond to the Commission's concerns.
The European Court of Human Rights has in the past taken interim measures obliging Hungary to provide food to people detained in the transit zones following emergency appeals lodged by NGOs including the Hungarian Helsinki Committee.