On Monday, Italy had said it would stand by its budget and refuse to cut spending, undeterred by its debt reaching 130% of GDP.
That level of debt is more than twice the European Union limit of 60% and second only to Greece.
European Commission vice president Valdis Dombrovskis said: “Today for the first time the commission is obliged to request a euro area country to revise its draft budgetary plan, but we see no alternative.”
Italy could have faced being fined by the bloc but instead has been told that it must draw up a new budget within three weeks, according to Italian news agency AGI.
Mr Dombrovskis said: “Experience has shown time and again that higher fiscal deficits and debt do not bring lasting growth.
“And excessive debt makes your economy more vulnerable to future crisis.”