The deputy head of the bloc's executive Commission, Frans Timmermans, said it was determined to uphold EU values.
Thousands of Hungarians have protested against laws which could see the closure of a prestigious university.
Hungary is also forcibly housing asylum seekers in secured shipping containers.
There was a serious question whether that was compatible with EU law, Mr Timmermans said at a news conference.
He said the Commission would consider its next steps in coming weeks and would act if there were no positive developments.
"Taken cumulatively, the overall situation in Hungary is a cause of concern for the Commission," Mr Timmermans said.
Hungary's increasingly radical right-wing Prime Minister, Viktor Orban, has declared war on liberalism, reports BBC's Nick Thorpe, in Budapest.
Hungary to detain all asylum seekers in border camps
Large protest in support of Hungary's Soros-backed university
His government has come under growing criticism of its treatment of asylum seekers - including on Monday, when the UN High Commissioner for Refugees Filippo Grandi said the container camps would surrounded by razor wire would "have a terrible physical and psychological impact on women, children and men who have already greatly suffered".
Mr Grandi also said he was "very concerned about highly disturbing reports of serious incidents of ill-treatment and violence against people crossing the border into Hungary, including by state agents".
Hungary's Higher Education Law, signed earlier this week, could force the closure of the Central European University (CEU), founded by philanthropist George Soros and ranked among the top 200 universities in the world in eight disciplines.
Last Sunday, Budapest also saw the largest protest yet against the move, which has also inspired an international campaign of solidarity.
Late on Tuesday, US state department spokesman Mark Toner urged the Hungarian government to suspend implementation of the law.
Another protest is planned in Budapest on Wednesday evening.
But the Hungarian government says it will not respond to the campaign, saying CEU has a year to comply with the new rules.
Hungary passes bill targeting Central European University
Hungarian attack on George Soros prompts NGO anger
The university built to defend democracy
The EU has warned it could take legal action against Hungarian legislation cracking down on higher education, non-governmental organisations and asylum-seekers.