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

More than a week ago around 1,000 members of the Guarani-Kaiowa community occupied ranches in the area.
The leader was shot when farmers tried to retake an occupied farm on Saturday.
In 2005 the Supreme Court declared that the area where the violence is taking place belonged to the Guarani.
Justice Minister Jose Eduardo Cardozo travelled to the region with a high-level delegation, including the director-general of the Federal Police and the president of the government's Indian agency, to try to defuse the growing tension.
Federal troops have also been sent there to restore order and police the area. They will remain for a month.
The violence started when the Guarani-Kaiowa occupied five ranches on 22 August, taking hostages who were later released.
The Guarani-Kaiowa been demanding the return of their ancestral lands which, they say, were stolen by ranchers.
Brazil's constitution required the government to map out all indigenous territory and return it for their exclusive use by 1993, but the majority of Guarani lands remains in the hands of the ranchers.
Many Guarani are forced to live in overcrowded reserves or in makeshift camps on the roadside where malnutrition, disease and suicide are high.
The EU has warned it could take legal action against Hungarian legislation cracking down on higher education, non-governmental organisations and asylum-seekers.
[NEXT_CONCEPT]
The Brazilian justice minister has condemned the killing of an indigenous leader who was shot during a land protest in the state of Mato Grosso do Sul.