He cited the Budapest government’s treatment of refugees, independence of the judiciary and freedom of the press.
“Hungary is not far away from issuing orders to open fire on refugees,” he suggested.
EU leaders meet in Slovakia on Friday to discuss the union’s future.
Mr Asselborn’s interview with German daily Die Welt is likely to inflame passions ahead of the summit.
The EU could not tolerate “such inappropriate behaviour”, he said, and any state that violated such basic values “should be excluded temporarily, or if necessary for ever, from the EU”. It was “the only possibility to protect the cohesion and values of the European Union,” he said.
Hungary joined the EU in 2004 and while the European Union can reject or delay a candidate from joining, it is not thought to have the power to expel an existing member state.