Foreign minister Peter Szijjarto said Budapest would hold up the disbursement until Ukraine removes Hungarian bank OTP from a blacklist of firms working in Russia.
He said Budapest, which has the closest ties in the EU to Russia, could also block a new round of sanctions over the war due to the issue and plans to impose export restrictions on eight Chinese firms.
EU countries have already unlocked some 5.6 billion euros in common funding to help arm Ukraine in its fight against Russia since Moscow invaded last February.
The bloc's member states recently signed off on using two billion euros for a plan aimed at getting one million artillery shells to Ukraine over the next year.
That means the bulk of the nearly eight billion euros currently allocated to the joint European Peace Facility (EPF) has already gone towards Ukraine.
Earlier, Budapest claimed it was opposing the new tranche of money as the funds were meant to support partners around the world, not just Ukraine.
Several European diplomats confirmed Wednesday that Hungary was stalling the new chunk of funds set aside to reimburse EU countries for the cost of weapons sent to Ukraine.
Diplomats were still seeking to get an agreement for a meeting of EU foreign ministers in Brussels on Monday, they said.
The debate over the funding comes as Ukraine is desperately pleading for weaponry for its forces as they gear up for a counter-offensive.
The EU's member states agreed last year that they could in principle raise the ceiling of the EPF by another 3.5 billion euros to help see it through to 2027.
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