Some 35,000 people have been arrested while tens of thousands more have been fired from their jobs
Sebastian Kurz told Oe1 radio that Turkey must "top the agenda" of a meeting of European Union foreign ministers next Monday that should agree a "different EU policy".
"Over recent years Turkey has moved further and further away from the EU, but our policy has remained the same. That can't work. What we need are clear consequences," Kurz said.
"In Turkey, opposition figures are being arrested, journalists are being persecuted, officials are being fired if they think differently and the return of the death penalty is being talked about."
Under the EU's deal with Turkey in force since March, the EU has promised an acceleration of accession talks, visa liberalisation and three billion euros ($3.3 billion) in return for taking back migrants who make it to Greece.
"This does not correspond to the situation in Turkey and as a result this policy must be changed," Kurz said.
Stopping the funds "is the logical consequence... It is quite clear that this money will not flow if Turkey does not stick to its side of the deal," he said.
Turkey's Western allies are concerned that President Recep Tayyip Erdogan is using a state of emergency imposed after a July 15 coup attempt to crack down not just on plotters but on critics in general.
Some 35,000 people have been arrested while tens of thousands more have been fired from their jobs. The main pro-Kurdish party on Sunday said it was pulling out of parliament after nine of its MPs including the two co-leaders were arrested.
Austrian Defence Minister Hans Peter Doskozil said Sunday that EU countries "cannot rely on Turkey" and should prepare for a breakdown of the accord by reinforcing their borders.
The issue was set to be high on the agenda of a meeting in eastern Austria Monday between Doskozil and regional counterparts in the Central European Defence Cooperation body. The talks move to Sarajevo on Tuesday for a second day.