The European Commission has recommended that Bulgaria and Romania should join the EU next year as planned, but only if they fulfil key conditions.
EU colours have been springing up all over Romania
Bulgaria in particular will have to show tangible results in the fight against corruption and organised crime.
The report presented to the European Parliament also warns both states could face serious membership restrictions and cuts to EU funds after they join.
The final assessment on whether they can join will be delayed until October.
In its progress reports, the commission said the countries' accession could still be postponed until January 2008 if they did not show enough progress by the autumn.
Clear results in tackling organised crime networks
Implement laws for fighting fraud and corruption
Do more to prevent money laundering
Prevent embezzlement of aid
Complete agriculture reforms
Finish setting up agencies for disbursing EU aid to farmers
Agricultural reforms including raising veterinary standards
Make electronic tax system compatible with EU to allow proper collection of VAT
"The possibility of being ready in 2007 is do-able," European Commission President Jose Manuel Barroso told the parliament.
"But it is for the two countries to deliver."
Correspondents say the commission does not want to penalise reformist governments in both countries by delaying their entry, but with growing public unease in western Europe over further expansion, it has to keep up the pressure for deeper changes.
Bulgaria has to tackle six areas of serious concern, including high-level corruption and organised crime.
"Indictments, prosecution, trials, convictions and dissuasive sentences remain rare in the fight against high-level corruption," the report warns. It calls for "clear evidence of results".
Romania's to-do list is shorter and more technical, with four points mainly covering food safety and setting up agencies to pay EU farm aids.
The report warns that both countries risk losing billions of euros if these agencies are not in place and that some food exports could be banned to prevent the spread of mad cow disease.
A special monitoring system could also be put in place in the first three years after they join if efforts to tackle corruption and reform the judiciary do not yield results.
Such close monitoring is unprecedented in the EU and some say it could amount to second-class membership, the BBC's Oana Lungescu in Brussels says.
Enlargement Commissioner Olli Rehn said it was the EU's "duty to ensure that once they join, they really meet the conditions".
Mr Barroso and Mr Rehn were due to travel to Romania and Bulgaria this evening to reassure both countries and ask them to make a final push.
Romania welcomed the report as "the best evaluation ever received", while Bulgaria vowed to improve justice and law enforcement.