The demand comes over a controversial new law in Hungary, seemingly aimed at effectively closing the George Soros-funded Central European University (CEU).
Hungary has rushed through a bill requiring foreign-accredited universities to provide higher education services in their own countries and ordered them to be approved through a contract between the Hungarian government and the country where they are accredited, which in CEU's case is the US.
The move has sparked fury and major protests have been staged earlier this week. Observers say the law is part of a clampdown on free expression with the Hungarian authorities viewing Soros, the global capitalist billionaire, as the main target.
Hungary's Prime Minister Viktor Orbán has previously called the university a "fraud" and said, "in Hungary, one cannot be above the law - even if you are billionaire."
The European Network Against Racism (ENAR) and its member organisations have sent a protest letter to European Commission President Jean-Claude Juncker and Parliament's EPP group leader Manfred Weber.
Orbán's Fidesz party is a member of the EPP.
ENAR says it is deeply concerned about recent developments in Hungary which "aim to shut down the Central European University and to silence civil society organisations."
The letter to Juncker and German MEP Weber says the new law "will put Hungarian NGOs fighting racism under pressure in a country where they are badly needed."
It goes on, "These attacks on academic freedom, freedom of speech, democracy and the rule of law are unacceptable for a member state."
It adds, "The reluctance of the European Commission and the European People's Party to uphold core EU values threatens the credibility and legitimacy of the EU as a whole.
"What is the point of having strict criteria on democracy, the rule of law and human rights for EU membership, which can then be violated at will without facing the consequences once a member state?
"Further delaying forceful action will send the message that the EU treaty is a toothless piece of paper and that member states adopting abusive policies are given a free rein."
ENAR is calling for the Commission to impose sanctions on the Hungarian government for "breaching fundamental EU values of freedom, democracy, equality, the rule of law and respect for human rights."
It also wants the EPP in Parliament to "stop protecting" Fidesz, Hungary's ruling government party and member of the EPP group, and "take punitive measures if they fail to comply with the principles of the EU Charter of Fundamental Rights."
Tens of thousands of protesters poured into the streets of Budapest on Sunday to urge President János Áder not to sign the law.
The law has come under fire from a variety of critics, including Hungary's own member of the European Commission, Tibor Navracsics, who is in charge of the education portfolio and belongs to the ruling conservative Fidesz party.
Navracsics said on Sunday, "Central European University is one of the most important higher education institutions not only in Hungary, but also in the European higher education system.
"Therefore, I think it's important that after the correction of possible irregularities, it can continue to operate in Budapest undisturbed."
Further condemnation came from András Loke, President of the board of Transparency International's branch in Hungary, who said, "Almost the only success story the government has at home, I think, is that it built a fence and is not letting in migrants .That is to say the people like it, and they say, 'Finally, somebody has done it.'"