Russia's state-owned Rosatom was due to install two new reactors at the Paks plant south of Budapest, Hungary's sole nuclear facility, which fulfils half of its electricity needs.

Hungary struck a deal with Russia in 2014 that also involved a 10-billion-euro ($11.6 billion) Russian loan, but work was delayed by permit issues and the Covid-19 pandemic.

Austria filed its legal complaint in 2018, which was ultimately backed by the European Court of Justice (ECJ) on Thursday.

The court said in a statement it was annulling the commission's decision to approve the plant because the EU executive arm should have ascertained whether giving the contract to a "Russian undertaking" complied with EU public procurement rules.

The commission's decision was "not sufficiently reasoned", the court said, because it was not clear why Hungary awarded the contract to Russia without a public tender.

The plant's original four reactors, built with Soviet-era technology in the 1980s, are scheduled to be retired gradually from 2032.

Hungarian Prime Minister Viktor Orban, who has a close relationship with Russian President Vladimir Putin, is adamant Budapest must continue cooperating with the Kremlin to ensure its energy security, even in the face of Moscow's invasion of Ukraine.

Last year, Hungary's parliament adopted legislation that permits increasing the 12.5-billion-euro contractual price to prevent further delays.

Hungarian EU Affairs Minister Janos Boka said Thursday that the top court ruling did not "prevent" Hungary from continuing with the expansion.

"Since the court did not find either the state aid scheme or the public procurement procedure to be unlawful, there is no legal obstacle to the Paks investment continuing according to the existing schedule," he told reporters.