Brussels will this week propose tough powers to cut off funding to countries such as Poland and Hungary where judicial independence is under threat, but will leave them on the hook for billions of euros in EU budget commitments.

In a move risking a flare-up with Warsaw and Budapest, the European Commission will on Wednesday announce regulation allowing it to choke off EU money to countries where problems with the rule of law endanger sound financial management.

Crucially any funding curbs imposed under the law would not relieve the member state of its EU budget obligations. This means it remains liable for subsidy commitments made to farmers and the financing of ongoing investment projects, according to officials familiar with the reforms. “The bridge building [projects] will continue,” said one EU diplomat. “This will not punish the [ultimate] beneficiaries of EU funds.”

The rule of law measure is one of the most contentious elements of the commission’s proposals for the union’s long-term budget, which will cover more than €1tn of spending between 2021-27.

During deliberations, senior Commission officials decided against a broader law tying “values” to money, or a direct link, to the so-called “Article 7” process to police rule of law.

The commission last year formally warned there was a “clear risk of a serious breach of the rule of law in Poland” from the reforms that systematically enabled politicians to “interfere in the composition, powers, administration and functioning of the judicial branch”.

The chosen method is instead based on Article 322 of the EU treaties, through which financial management rules are set. Günther Oettinger, the EU’s budget commissioner, has said EU funds can only be used “where we are sure the courts are independent”.

Poland has reacted angrily to Brussels plans to give itself new powers. Under Article 7, sanctions for rule of law breaches can be vetoed by other member states, a power Hungary’s Viktor Orbán has promised to use to protect Poland.

The Commission’s new law would lower that voting bar, increasing the threat of financial penalties. In current drafts, a Commission proposal to curb funding could only be stopped if a weighted majority of EU member states vote against it, a procedure dubbed a “reverse qualified majority”.

Konrad Szymański, Poland’s Europe minister, has warned against the commission creating new discretionary powers that can be used to “punish Poland” for “various imaginary offences”. Instruments supposed to protect the rule of law risk “trampling on this principle”, he said last week.

The budget proposal comes at a delicate moment in the “Article 7” rule of law negotiations between Warsaw and Brussels, which had begun to make progress in recent weeks.

Poland is the union’s biggest beneficiary from the common budget and is facing a double squeeze next week as the commission trims so-called “cohesion spending”, and places new conditions on how funds can be distributed and spent.

The severity of the hit to Poland — and the intrusiveness of the commission’s new powers on rule of law — is a significant factor in talks.

The planned regulation empowering the commission takes an expansive view of EU funding, covering all union financial support channelled to national and regional governments. This would include a country’s share of the €44bn a year of direct farm payments, as well as investment projects that are co-financed by Brussels.

To avoid Brussels being blamed for cutting vital farm subsidies or infrastructure projects, the regulation makes clear that member states are still responsible for discharging the financial obligations.