Vienna is furious with the ruling and saying it did not view nuclear energy as the way to combat climate change or as being in the common European interest.
Austria, which shares a border with Hungary, prides itself on supporting clean energy and does not have any nuclear plants of its own.
It launched a similar legal action against the European Commission in 2015 over its backing of British plans for the £16bn development of the Hinkley Point nuclear power plant.
A spokesman for Austrian Sustainability Minister Elisabeth Koestinger said: “We in the government have agreed that there are sufficient reasons to sue the Commission.
“EU assistance is only permissible when it is built on common interest. For us, nuclear energy is neither a sustainable form of energy supply, nor is it an answer to climate change.”
EU state aid regulators approved Hungary’s plan to build two new reactors at its Paks nuclear site with the help of Russia’s Rosatom last march.
The Hungarian aims to start construction on the reactors this year, with the first facility expected set for completion in 2025. The two new reactors will double the plant’s 2,000 megawatt capacity.
Brussels officials insisted the Hungarian authorities had agreed to several measures to ensure fair competition.
The deal to expand the plant has already courted controversy an claims that European Commission gave it their backing for political reasons and turned a blind eye to Hungary’s decision to skip a public tender despite EU law requiring competitive bidding for such projects.
Documents obtained by Hungarian Green MEP Benedek Jávor under EU transparency rules appeared to show commissioners were unwilling to put even more strain on their tense relationship with Budapest and Hungary’s nationalist leader Viktor Orban.
Mr Jávor said: “It was a political decision, and then they tried to construct a reason ex-post. This is backed by these documents.”
He said it was “unique” for the Commission to approve a decision that went against so many of Brussels’ priorities.
Commission spokeswoman Lucia Caudet disagreed that the decision was crafted to match political needs, saying that considering new arguments during an infringement procedure like this one “is not exceptional.”