* EU executive proposes taking 7.5 billion euros from Hungary

* Says remedies proposed by Hungary could work if well implemented

* 27 EU countries have three months to decide, no veto

* EU tests new democracy sanction for the first time

* Hungary pledges to meet all commitments to unlock EU funds (Adds response from Hungarian minister)

By Gabriela Baczynska and Gergely Szakacs

BRUSSELS/BUDAPEST, Sept 18 (Reuters) - The European Union executive recommended on Sunday suspending some 7.5 billion euros in funding for Hungary over corruption, the first such case in the 27-nation bloc under a new sanction meant to better protect the rule of law.

The EU introduced the new financial sanction two years ago precisely in response to what it says amounts to the undermining of democracy in Poland and Hungary, where Prime Minister Viktor Orban subdued courts, media, NGOs and academia, as well as restricting the rights of migrants, gays and women during more than a decade in power.

"It's about breaches of the rule of law compromising the use and management of EU funds," said EU Budget Commissioner Johannes Hahn. "We cannot conclude that the EU budget is sufficiently protected."

He highlighted systemic irregularities in Hungary's public procurement laws, insufficient safeguards against conflicts of interest, weaknesses in effective prosecution and shortcomings in other anti-graft measures.

Hahn said the Commission was recommending the suspension of about a third of cohesion funds envisaged for Hungary from the bloc's shared budget for 2021-27 worth a total of 1.1 trillion euros.

The 7.5 billion euros in question amounts to 5% of the country's estimated 2022 GDP. EU countries now have up to three months to decide on the proposal.

Hahn said Hungary's latest promise to address EU criticisms was a significant step in the right direction but must still be translated into new laws and practical actions before the bloc would be reassured.

Development Minister Tibor Navracsics, in charge of negotiations with the EU, said Hungary would meet all 17 of its commitments made to the European Commission to stave off the loss of any EU funding.

"Hungary did not make commitments to befuddle the Commission," Navracsics told a news conference. "We have made commitments that we know can be implemented ... therefore, we will not be facing a loss of funds."

CORRUPTION

Orban's government proposed creating a new anti-graft agency in recent weeks as Budapest came under pressure to secure money for the ailing economy and forint, the worst-performing currency in the EU's east.