The institution has long been seen as a hostile bastion of liberalism by Prime Minister Viktor Orban's right-wing government.
The English-language Central European University (CEU), set up in Budapest by Soros in 1991 after the fall of communism, has long been seen as a hostile bastion of liberalism by Prime Minister Viktor Orban's right-wing government.
A draft modification to a 2011 higher education law published on the Hungarian parliament website Tuesday would tighten rules on foreign-funded universities operating in Hungary, including the CEU, though it is not mentioned by name.
Institutions awarding diplomas in Hungary would keep their operating licenses only if they met stringent new conditions including having campuses and offering similar courses in their home country.
The CEU would fall afoul of these conditions. Its home country is the United States, but it does not have a campus or offer courses there.
An agreement will also be required between an institution's home government and its Hungarian counterpart.
Education state secretary Laszlo Palkovics told reporters Wednesday that the new rules were required after recent checks by the authorities revealed "legal infringements" at a number of foreign-funded institutions, including the CEU.
"It is not an anti-CEU or anti-Soros law," he said.
But if the conditions are not met by February 2018, an institution will not be able to offer courses the following September, he said.
The CEU, well-regarded internationally, offers masters and doctoral courses in social sciences, humanities, law, management and public policy, and has staff and students from over 100 countries.
The university said Tuesday that the proposed legislation "targets CEU directly and is therefore discriminatory and unacceptable".
"These amendments would make it impossible for the university to continue its operations," it said.
The CEU already complies fully with both Hungarian and US law, it added, enabling it to award both Hungarian and US-accredited degrees.
In a letter sent to staff and current and former students, Michael Ignatieff, the university's president and rector since 2016 and a former leader of Canada's Liberal Party, said the legislation would be contested "through every means possible".
If the CEU were forced to close, it "would damage Hungarian academic life and negatively impact the government of Hungary's relations with its neighbours, its EU partners and with the United States," he said.
The US charge d'affaires in Hungary, David Kostelancik, said Wednesday that the US was "very concerned" and that the CEU enjoyed "strong bipartisan" support in Washington.
"It is a premier academic institution with an excellent reputation in Hungary and around the world, and it stands as an important centre of academic freedom in the region," Kostelancik said in a statement.
Soros, 86, whose Open Society Foundations (OSF) has also funded civic groups in Eastern Europe since the 1980s, has for some time been in the crosshairs of Orban's government and elsewhere in the region.
Orban, who himself received a Soros grant in the 1980s to study abroad, regularly accuses the financier of backing "anti-Hungarian" groups and meddling in the country's politics.
Another draft law likely to be submitted in the coming weeks, concerning foreign-funded civic organisations, is widely seen as targeting Soros-backed groups.