Hungarian Foreign Minister Peter Szijjarto wasted little time in slamming the vote as "nothing less than the petty revenge of pro-immigration politicians".
There were 448 votes in favour of triggering Article 7, with 197 votes against and 48 abstentions.
"It is a positive sign of this parliament taking responsibility and wanting action", Sargentini told a press conference afterward.
Since he came to power in 2010, Orban has used his parliamentary majority to pressure courts, media and non-government groups in ways his opponents say breach European Union rules.
The vote was based on a report that voiced concerns about judicial independence, corruption, freedom of expression, academic freedom, religious freedom, and the rights of minorities and refugees under eight years of Orban rule.
"But it's not right if they want to take the right of border protection away from us and if Brussels wants to direct the defense of Hungary's borders", Orban said.
"Hungary will protect its borders, stop illegal migration and defend its rights", said Orban, who embraces a vision of a Christian Europe and opposes an influx of Muslims and others.
The vote, backed by Manuel Weber, the head of the European People's Party - the grouping Orban's Fidesz party also belongs to - could in theory lead to Budapest being stripped of its EU voting rights.
He said the environment secretary had declined the opportunity to distance himself from Mr Orban's "authoritarian and anti-democratic practices", adding: "Theresa May should do what Gove failed to do and condemn the Hungarian government". "More Hungary than Orban!" chanted the demonstrators, organized left opposition.
Environment Secretary Michael Gove said the MEPs were not endorsing Mr Orban. The EU member states may also choose to address recommendations to Hungary to counter the risk.
"I have always been in favour of building bridges and I want to continue to do so, but yesterday (Tuesday) I didn't see any readiness from the Hungarian PM to make a move towards his European Union partners and address our concerns", Mr Manfred tweeted. These values, which are enshrined in EU Treaty Article 2 and reflected in the EU Charter of Fundamental Rights, include respect for democracy, equality, the rule of law and human rights.