When Hungarian journalist Szabolcs Panyi realised he was on a list of people possibly targeted by Israeli-made Pegasus spyware, he wore it like "a badge of honour", but then he was hit with a sense of shame.

"This Pegasus tool was only supposed to be used against the worst people on Earth, so to find out that someone regards a journalist as such -- that's really humiliating," he told AFP.

Critics have long accused self-styled "illiberal" Hungarian Prime Minister Viktor Orban of undermining basic rights including freedom of the media since he took power in 2010.

Hungary was the only EU country listed as a potential user of the spyware, with hundreds of targets including journalists, lawyers and other public figures.

Prime Minister Viktor Orban's government in Budapest has been accused of using Israeli spyware to target journalists and others Prime Minister Viktor Orban's government in Budapest has been accused of using Israeli spyware to target journalists and others Photo: AFP / GERGELY BESENYEI

Officials have dismissed the allegations and pro-government news outlets have accused US billionaire George Soros and the "left-wing press" of stirring up a scandal.

But activists are now raising the alarm not only about the immediate spying allegations but also about Hungarian laws that appear to allow such surveillance.

Hungarian investigative journalist Szabolcs Panyi says it is 'a badge of honour' to be on a leaked list of phones reportedly being targeted by Isreali-made spyware Hungarian investigative journalist Szabolcs Panyi says it is 'a badge of honour' to be on a leaked list of phones reportedly being targeted by Isreali-made spyware Photo: AFP / GERGELY BESENYEI

For Panyi, who has scored scoops on shady Hungarian government deals with Russia and China, the experience has changed how he works and lives.

"My rights were seriously violated," Panyi said, adding that he felt ashamed to be monitored like he was a criminal or a terrorist.

"Now I will avoid keeping records and drafts on computers that are connected to the internet, and apply security measures that can prevent me being the victim of surveillance again."

Panyi works at Direkt36.hu, part of an international consortium of news outlets that collaborated on the Pegasus story.

Activists point out that hacking journalists' phones could also expose their sources, making this scandal even more serious.

The telephone number of Hungarian investigative journalist Szabolcs Panyi was on a leaked list of phones reportedly being targeted by Isreali-made spyware The telephone number of Hungarian investigative journalist Szabolcs Panyi was on a leaked list of phones reportedly being targeted by Isreali-made spyware Photo: AFP / GERGELY BESENYEI

"It is unacceptable that the government does not respect the protection of journalistic sources," Gabor Polyak of Hungarian watchdog Mertek Media Monitor told AFP.

"It is not only the journalists concerned who are victims of interception, but all those they have contacted."

On Tuesday, the European Commission sounded the alarm over judicial independence, press freedom and anti-graft efforts in Hungary in the bloc's second annual report on those issues.

The report included worries about the shrinking space for independent media -- Orban allies have bought up independent news outlets in recent years.

The government has rejected calls for an independent inquiry into the Pegasus allegations and defended its record.

"Hungary has always acted in accordance with the law," said Interior Minister Sandor Pinter, while Foreign Minister Peter Szijjarto insisted that the government "has no knowledge of such data collection".

Legal expert Mate Daniel Szabo says there is little chance of serious consequences to the scandal because Hungary lacks independent safeguards against abuses of power.

The European Court of Human Rights ruled in 2016 that Hungarian legislation failed to give proper protection against violations of the right to privacy and family life.

Despite the judgment, Hungarian law still empowers the Justice Ministry to authorise surveillance and data gathering without review by an independent body or judge, said Szabo.

"This kind of secretive surveillance is actually in line with Hungarian law, even if may be unlawful by other standards," Szabo, a co-head of the Hungarian Civil Liberties Union (TASZ), told AFP.

Aron Demeter of Amnesty International Hungary also told AFP that the law itself "can be very problematic".

"It's a government agency asking the government if it can do a surveillance. And obviously, the government will say yes," he said.