Sargentini will draft a report which is expected to recommend what steps should be taken against Hungary for allegedly curbing freedom of the press, failing to uphold the rights of refugees and minorities and it actions again universities and NGOs.
The news comes after the European Union, on 13 July, launched legal action against Hungary because of new rules governing civic groups which receive funds from abroad.
The European Commission said that the law approved by Hungary's Parliament in June could prevent non-governmental organisations "from raising funds and would restrict their ability to carry out their work."
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On Monday, Sargentini called on the EU "to do more than just criticise [Hungarian Prime Minister] Viktor Orbán's actions."
The Dutch deputy said, "The Hungarian government seems to be on a witch-hunt against everything that belongs in a healthy democracy that respects rule of law. Time and time again, Orbán has gone against the norms and values of the European Union.
"When a country is no longer prepared to uphold our common values, it's a logical step to take away its voting rights. Hungary cannot be allowed to block much needed solutions to our Union's common problems."
She added, "Orbán's actions have repeatedly provoked fierce debate in Europe. But action has never been forthcoming. With fellow EU countries refusing to call him to order, it now falls to the European Parliament to take the initiative. It is time that we - as the European Union - defend the values that we share as European countries."
On 15 May, Parliament backed a resolution on the situation in Hungary which mandated the civil liberties, justice and home affairs committee to draw up a report on the infringement of fundamental principles and values by the Hungarian government.
A Parliament source told this website, "On the basis of this report, the European Parliament may invite the Council to initiate proceedings against Hungary in accordance with Article 7. This would require a two thirds majority in Parliament."
The Commission has also raised concerns about the NGO law regarding the free movement of capital and the protection of the personal data of donors.
"Civil society is the very fabric of our democratic societies and therefore should not be unduly restricted in its work," European Commission First Vice President Frans Timmermans said earlier this month.
The Dutch official added, "We have studied the new law on NGOs carefully and have come to the conclusion that it does not comply with EU law."
The controversial legislation reflects the conflict between Prime Minister Viktor Orbán and Hungarian-American financier and philanthropist George Soros.
Critics of Orbán say Soros' ideal of an open society is at odds with Orban's desire to turn Hungary into an illiberal state. The government, it is argued, sees NGOs as foreign agents working against Hungarian interests, especially those who support the rights of asylum seekers.