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Prime minister Viktor Orban has stepped up Budapests ongoing row with billionaire philanthropist George Soros as he takes aim at NGOs.
Right-wing populist Mr Orban has especially focused on organisations funded by Mr Soros, an American-Hungarian, branding them a "mafia-like" network with paid political activists who threaten national sovereignty.
The new law requires NGOs that get money from abroad to register with the authorities.
NGOs receiving more than $26,000-a-year from overseas are affected by the law which ordered them to declare their foreign status online and in all press kits and publications.
Foreign-funded NGOs threaten the countrys political and economic interests and interfere with the functioning of its institutions
Mr Orbans ruling Fidesz party says it wants to ensure greater transparency and protect Hungary from foreign influence, but NGOs say the bill stigmatises them and is intended to stifle independent voices in the central European country.
The text of the law, authored by Gergely Gulyas, a Fidesz vice president, says the rules are necessary because foreign-funded NGOs can threaten the countrys political and economic interests and interfere with the functioning of its institutions.
It adds: "It is of vital public interest that society and citizens clearly see what interests these organisations represent.
Foreign interest groups strive to take advantage of civil organisations."
One of the NGOs affected, the Hungarian Civil Liberties Union (TASZ), said it would not comply with the law and would take any legal challenge to international courts.
TASZ said in a statement: The law is a targeted attack and attempt to silence TASZ and all other organisations which have the courage to help those who are oppressed.
The union receives large contributions from Mr Soros' Open Society Foundations, as does another human rights group, the Hungarian Helsinki Committee, which also said it plans to boycott the law.
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The law marks an escalation of Mr Orbans push to stop what he calls foreign meddling in Hungarian affairs.
Laws have already been passed tightening controls over foreign universities in Hungary, which critics say are aimed at the Central European University founded by Mr Soros.
Mass protests have broken out across Hungary in recent months in the wake of the new NGO and university laws.
The Hungarian PM has set himself on a crash course with the EU as the European Parliament launches the process that could theoretically deprive Hungary of its EU voting rights.
Guy Verhofstadt, president of the liberal group in the European Parliament, urged EU action to protect the rights of civil society in all member states.
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He said: "The attempts by some EU governments to silence NGOs are shameful and contrary to the values of the European Union.
"The European Commission should ... do more to support NGOs inside the EU who face censorship."
Last week Hungary backtracked on parts of the NGO legislation to meet some of the objections from the Council of Europe's advisory panel, the Venice Commission.
However, Human Rights Watch (HRW) dismissed the amendments as "cosmetic" and said the law was about "silencing critical voices in society".
Mr Soros's Open Society Foundations, which disburse funding to several prominent NGOs in Hungary, also warned on Monday that the law posed serious risks to democracy in the country.
OSF director Goran Buldioski said the law "attacks Hungarians who help fellow citizens challenge corruption and arbitrary power.
The European Parliament adopted a resolution last month condemning Hungary for the "serious deterioration" in the rule of law and fundamental rights, and called on the government to withdraw the bill on foreign-funded NGOs.
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Hungary DEFIES European Union as Orban cracks down on foreign-funded NGOs - Express.co.uk