German carmaker Audi has said it will halt investments worth as much as 1bn euros (£671m; $1.3bn) in Hungary after the government imposed tax increases.
Audi makes its TT sports cars at a plant near Gyor in western Hungary and is the country's biggest exporter.
The decision to halt investment could slow economic growth in Hungary at a time when the government is trying to repair the country's tattered finances.
Hungary recently introduced a 4% "solidarity" tax on companies.
'Additional burdens'
The government is having to increase taxes in order to shrink Hungary's massive budget deficit, which has ballooned to 10.1% of gross domestic product.
Plans to introduce an austerity package, coupled with Prime Minister Ferenc Gyurcsany's admission that his party lied about the economy to win an election, prompted the worst riots since the fall of the Berlin Wall.
What has angered Audi is that the company was granted a tax holiday until 2011 as one of the incentives to convince it to build its factory in Hungary.
Before the problems emerged, Audi had been planning to more than double production at its Gyor plant, which was set up in 1994 and is expected to produce 20,000 cars this year.
"The investment plan has been suspended because unfavourable economic conditions were putting additional burdens on the company," said Monika Czechmeister, spokeswoman for Audi Hungaria Motor.
The government and Audi have been in talks about how to resolve the dispute.
"Talks are proceeding with Audi Hungaria and we would like them to make these investments in Hungary, but not at all costs," Economy Ministry spokesman Gergely Abraham said.
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