Hungary and Poland blocked approval on Monday of the EU's long-term budget and coronavirus rescue -- a 1.8-trillion-euro package -- and plunged the bloc into political crisis.
Warsaw and Budapest oppose tying EU funding to respect for the rule of law and their envoys vetoed any decision to proceed, EU diplomats at the Brussels meeting told AFP.
"Hungary has vetoed the budget," Zoltan Kovacs, a spokesman for Prime Minister Viktor Orban said, arguing that the package must reflect a deal areached in July.
"We cannot support the plan in its present form to tie rule of law criteria to budget decisions," he said.
EU leaders thought they had resolved dispute over the seven-year EU budget and associated stimulus plan at a marathon four-day-and-night summit in July.
They have since also resolved differences with the European Parliament over spending priorities, and the trillion-dollar budget and 750-billion stimulus package is ready for approval.
But Poland and Hungary remain implacably opposed to tying their future funding to Brussels' judgement on whether their spending is in line with EU law.
Poland's Prime Minister Mateusz Morawiecki threatened a veto last week, and on Monday his hardline justice minister Zbigniew Ziobro returned to the fray.
"The question is whether Poland... will be subject to political and institutionalised enslavement," he said.
"Because this is not rule of law, which is just a pretext, but it is really an institutional, political enslavement, a radical limitation of sovereignty," he asserted.
- 'Serious crisis' - Senior European diplomats, however, said there was no question of the other countries agreeing to loosen the rule of law condition.
"We'll see if Budapest and Warsaw are looking for guarantees and if these are acceptable," one said, warning otherwise of a "serious political crisis".
Another suggested that Orban was perhaps looking for more money and might be persuadable.
If the pair continue to hold out, they can't be expelled from the Union, but the other member states will have to find another way to build a budget, the second diplomat warned.
The accord that emerged from the July summit foresaw a 2021-2027 budget, called a Multi-annual Financial Framework, of 1.074 billion euros plus a 750-billion-euro recovery plan.
The European Parliament rebelled over what it viewed as insufficient allocations for some of its favoured programmes, but accepted a new deal last week that adds another 16 billion euros.
Monday's ambassadors' meeting was called to sign off on this, and also on plans to allow the EU to issue joint debt and raise its own funds.
EU leaders were due to hold a videoconference on Thursday. That was meant to be on the coronavirus crisis, but may now be focused on the need to address the budget stand-off.