Brussels says the move is a result of deteriorating human rights and could lead to the delay or cancellation of £3billion (€3.5billion) in development loans earmarked for the country.
The announcement comes as a major blow to Turkey’s EU membership bid, which began in 1987 but has stalled since a failed coup in 2016 which left at least 241 people dead.
President Recep Tayyip Erdogan’s authoritarian regime has been accused of wide ranging human rights violations, including the detention of political opponents and government-led efforts to silence media criticism.
He has defended his crackdown and purges by claiming they are necessary to maintain stability in a NATO country which borders Iraq and Syria.
But a majority of EU countries, led by Germany and the Netherlands, have argued it makes no sense to continue providing money for political reform.
Announcing the withdrawal of the pre-accession funding to Turkey this week, Siegfried Muresan, the European Parliament’s chief budget negotiator, said: “As long as Turkey is not respecting freedom of speech, human rights, and is drifting further away from European democratic standards, we cannot finance such a regime with EU funds.”
But he added Turkish President Recep Tayyip Erdogan could still access £61.7million (€70million) of funding if his country improves its human rights record.
Apart from money that the EU gives Turkey as part of its 2016 migration deal – which is worth £2.3billion (€3billion) – Ankara was set to receive £3.8billion (€4.4billion) from the EU between 2014 and 2020.
In addition to this massive total, the country could lose out on an additional £3billion (€3.5billion) in European Investment Bank loans which have been earmarked for Turkey but are yet to be formally assigned.
That money is now likely to go to Ukraine and other former Soviet republics, diplomats said.
The change in policy from Brussels comes after fierce criticism of Mr Erdogan’s government from German Chancellor Angela Merkel.
In March, the Turkish leader accused Mrs Merkel of ”Nazi-like” practices after authorities in Germany blocked two political rallies aimed at Turkish residents.
During her campaign ahead of her re-election in September, Mrs Merkel blasted Turkish behaviour on human rights as “unacceptable” and said the rule of law in the country was “moving in the wrong direction”.