BRUSSELS: The European Union's executive arm said Wednesday it plans to withhold 495 million euro ($655 million) in EU development funds from Hungary after the country failed to reduce its deficit.

The proposal to withhold the funds is the latest stage in a protracted dispute over the country's finances and suspected violation of civil rights.

It is the first time the European Commission has proposed to withhold development funds from one of its members over an excessive deficit.

The Commission has been pressuring Hungary to cut its budget deficit, which has been breaking the bloc's limit of 3 percent of economic output for several years when one-off measures are stripped out.

Despite several warnings, the government in Budapest has so far failed to take any more structural actions to reduce its spending.

Complicating the picture, Hungary has also requested rescue loans from the EU and the International Monetary Fund after its funding costs rose in recent months amid concerns over the country's economy. Although the request was made late last year, neither institution has so far committed to giving aid.

The EU is also in a broader conflict with Hungary saying that new laws in the country violate EU rules by restricting the independence of the central bank and the court system. The Commission has also raised concerns over Budapest's restrictive media laws.