Ahead of the debate on Wednesday, the Commission said it plans to take legal action on Hungary's controversial higher education law, perceived by some as targeting the Central European University (CEU), media pluralism, the independence of the judiciary and the tightening of rules for non-governmental organisations and asylum seekers.
The CEU was founded and is funded by the Hungarian-American financier and philanthropist George Soros after the fall of communism in Hungary. A higher education law approved this month and set to enter into force in October sets out numerous tough conditions under which the university must operate. The law's passage through Parliament prompted 70,000 protesters to flood the streets of Budapest.
The Commission said that the law is not compatible with the "fundamental internal market freedoms, notably the freedom to provide services."
It has sent a letter of formal notice to the Hungarian government and the Hungarian authorities will now have one month to respond to legal concerns.
S&D group leader Gianni Pittella has condemned Hungary over its decision to close the respected Central European University (CEU), saying, "The decision of the Hungarian government to effectively close the respected Central European University is the latest in a long series of violation and breaches of EU values.
"We must fight to protect the freedom of independent institutions in Hungary and we support the Commission to start a political dialogue with the Hungarian government. However, if this dialogue achieves little they must be prepared to back it up with the threat of sanctions.
"Orbán's membership of the EPP group makes a mockery of their claim to stand for European values. As fellow pro-Europeans we urge them to finally stand up for the EU and kick Orbán and his cronies."
Elsewhere, the head of the university, Michael Ignatieff, has called for the EPP, which includes Orbán's Fidesz party as well as Angela Merkel's Christian Democratic Union, to do more to put pressure on the Hungarian Prime Minister.
During a visit to Brussels this week, he made a plea for help from the EU and accused Orbán of effectively putting a gun to his head.
Ignatieff said he was "cautiously optimistic" that the EU would launch infringement proceedings against the Hungarian government for its "outrageous" attack on academic freedoms.
On what he thinks Orbán hoped to achieve in persecuting the CEU, Ignatieff said, "You have really got to ask him. I can't characterise what the agenda is with confidence and for me that is not the issue. I don't care what Orbán's agenda is, actually. My point is you don't take an institution hostage to serve your political agenda, I don't care what it is. That's the fundamental."
Senior figures in the EPP, such the leader of its group Parliament Manfred Weber, a German MEP, have spoken of their concerns about Orbán's recent moves.
European Commission first Vice President Frans Timmermans, speaking in the debate in Parliament on Wednesday, told MEPs, "Recently, many have expressed worries about developments in Hungary and we share those worries.
"That is why the Commission today decided to start infringement proceedings against Hungary.
"The new Hungarian law is seen by many as an attempt to shut the Central European university which is a pearl in the crown of post divided Europe. If adopted it could be in breach of EU single market rules. I deeply regret any action aimed at trying to control the work of civil society organisations.
"We will follow this draft law closely and will not hesitate to take further action."
He also spoke of discrimination against Roma children in the education sector in Hungary which he said was another cause for concern.
He said, "The EU is not about Brussels. Each of its member states including Hungary, take responsibility and credit for what we do but they must also understand the rules of the club."
He said, however, that he was grateful to Orbán for taking part in the debate adding, "Dialogue to solved misunderstanding and when we disagree is the European way."
In response, Orbán told MEPs, "This allegation, that it we are trying to force this university to close, is absurd and untrue. The truth is that this is national legislation which has been adopted by the Parliament and which applies to other universities in the country, not just this one. It relates to transparency and new rules. It is my job to make sure that EU and Hungarian universities enjoy a level playing field."
He said the Hungarian bill follows an EU model in seeking to ensure that lobby groups are subject to full transparency.
Orbán said, "The bill is based on principles of transparency, that is, the financial background of NGOs. It is also important to say that we have been consistent and always respected the rules of the EU club."
In his only reference to George Soros, Orbán said, "Sores has said he wants to let in one million migrants to the EU each year and he offers loans to achieve this."
He stressed his commitment to the EU saying, "Hungary is committed to the EU and this is unquestionable. That is why I signed and agree with the Rome declaration.
"But we are unhappy with how the EU works and when we criticise it, it is because we want to regain public confidence in the EU. Good therapy requires good diagnosis and we need to be honest so that everyone understands - even if it is not the liking of everyone.
"We are irritated by the verbal straight jacket that stops us calling a spade a spade.
"Hungary is a proud country that wants to influence decisions. Public support for the EU is over 70 per cent, the highest in Europe. This will continue but the EU needs to be reformed."