EU's Benita Ferrero-Waldner said cutting aid was a difficult decision
The European Union has suspended more than $90m (63m euros; £54m) in aid to Honduras in the wake of a coup there.
It follows the failure of talks to resolve the country's political crisis.
President Manuel Zelaya was ousted from office by troops on 28 June over his plans to hold a referendum on changing the constitution.
The current interim government, led by Roberto Micheletti, has rejected a proposal that Mr Zelaya return as leader of a unity government.
The EU External Relations Commissioner Benita Ferrero-Waldner said in a statement: "In view of the circumstances, I have taken the difficult decision to suspend all budgetary support payments.
"I strongly appeal to both parties to refrain from any action or declaration which might further escalate tension, thus making the prospect of a solution more difficult."
Honduras's political leaders are still at loggerheads after the weekend talks mediated by the Costa Rican President Oscar Arias collapsed.
The deposed president has vowed to return home despite warnings from the interim government that they will arrest him if he does.