Hungary should be suspended or expelled from the European Union because of its "massive violation" of fundamental EU values, Luxembourg Foreign Minister Jean Asselborn said.
"Hungary is not far away from issuing orders to open fire on refugees," said Asselborn in an interview with Die Welt.
He accused Hungary of treating refugees "worse than wild animals".
"Anyone who, like Hungary, builds fences against refugees from war or who violates press freedom and judicial independence should be excluded temporarily, or if necessary for ever, from the EU."
It was "the only possibility to protect the cohesion and values of the European Union,'' he said.
Hungary strongly rejected Asselborn's claims.
Hungarian Foreign Minister Peter Szijjarto dismissed Asselborn as "an intellectual lightweight" and his comments as "sermonising, pompous and frustrated".
The comments come ahead of a meeting of the EU's leaders in Slovakia, where they will discuss the bloc's future.
Hungary's right-wing populist government has been accused by human rights organisations of whipping up anti-migrant views.
In a recent report Human Rights Watch called for the EU to take action against Hungary, after documenting what it alleges are serious abuses against refugees in contravention of European law.
Hungary has said it will not accept its EU quota of 1,294 refugees for resettlement, and is to hold a referendum on the issue on 2 October. The government of Prime Minister Viktor Orban has campaigned strongly for a rejection of the quota, and in a booklet distributed to voters said forced settlement "endangers our culture and traditions."
Hungary joined the EU in 2004, and though the union is not thought to have the power to expel a member state without the unanimous decision of all members, EU countries can choose to freeze bilateral diplomatic relations.