European Union (EU) ministers have suspended a €495 million ($647 million) payment to Hungary after it failed to keep within EU budget deficit limits.

The unprecedented move marks the first time the Union has punished a member state for flouting the strict budget rules, which stipulate that no country can go above a debt ceiling of 3 percent of GDP.

The decision to withhold the nearly half a billion Euro cohesion fund money comes as a report from the OECD group of developed nations predicted that Hungary would slide into recession this year, Reuters reported.

Our understanding is that the suspension decision is going to go ahead, said one diplomat close to the talks, according to Reuters.

Hungary is seeking support to block the suspension but it would probably need the backing of all of Eastern Europe, and that is something it is not going to get.

With the EU loan gone, Hungarian Prime Minister Viktor Orban will struggle to prop up the country's economy and stabilize the ailing forint currency.

Currently, 23 of the EU's 27 member states, including France and Germany, have exceeded the three percent limit.

But Hungary is the first to have the development money, intended to help it catch up with its richer neighbors, canceled.

The move is not popular with all the member countries, with many preferring a more uniform approach.

 We would have preferred to give Hungary some time to fall into line, Austrian Finance Minister Maria Fekter told Reuters.

We must treat all states in the same way.

According to reports, the suspension is intended to make an example of Budapest after Orban ignored warnings over the budget deficit and passed several unpopular laws, such as Europe's highest banking tax, and a new central bank law.

Critics have labeled the new laws ineffective and undemocratic.