BUDAPEST (Reuters) - Hungary approved a new law on Tuesday that could force a university founded by financier George Soros out of the country despite protests against the plan in Budapest and condemnation abroad.

A demonstrator holds up a banner saying "Veto" during a rally against a new law passed by Hungarian parliament which could force the Soros-founded Central European University out of Hungary, in Budapest, Hungary, April 4, 2017. REUTERS/Laszlo Balogh

Prime Minister Viktor Orban, a critic of liberal civil organizations funded by Soros, said last week the Central European University had violated regulations in awarding diplomas, an allegation the college rejects.

The law, which the government says is designed to address the administrative shortcomings of foreign universities, marks the latest clampdown on independent institutions that has seen Orban allies increase their influence over the judiciary, the media and the central bank.

U.S. and European leaders have spoken out in defense of the university and of academic freedom in general.

After the law was passed in parliament, thousands of students, professors and civilians held a rally, surrounding the central blocks in downtown Budapest that are also home to the headquarters of the CEU.

Protesters shouted “Free country, free university” and held up banners saying “Veto”, referring to the new legislation.

Orban’s human affairs minister told parliament earlier that institutions backed by Soros were trying to undermine the government.

“The organizations of George Soros operating in Hungary and around the world are just such pseudo-civilian agents, and we are committed to stamping out such activity,” Zoltan Balog said.

CEU, founded in Budapest in 1991, has 1,400 students. It said it operated lawfully. The school will challenge the law’s constitutionality and mount an international campaign to convince Orban’s government to reverse course, CEU Rector Michael Ignatieff told a press conference.

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Ignatieff spoke from Washington DC, where he is meeting lawmakers and government members, including Deputy Secretary of State Thomas Shannon.

“We will respectfully ask the president of Hungary to exercise his constitutional responsibility (regarding) the legislation,” he said.

“In the fight to save CEU we are fighting for the academic freedom of all Hungarian institutions of higher learning.”

LOCAL PROTEST, INTERNATIONAL SUPPORT

Thousands of students, professors and supporters rallied in Budapest already on Sunday demanding the government withdraw the draft legislation.

The new law sets several requirements that could force the CEU to leave Hungary.

German President Frank-Walter Steinmeier urged the European Parliament on Tuesday to defend human rights, specifically citing CEU.

“Europe should not remain silent, if civil society, even science – we are seeing now at the Central European University in Budapest – is being stifled,” Steinmeier said.

The Council of Europe, Europe’s leading human rights organization, said it was following developments.

Under the law, foreign universities must have campuses in Budapest and their home country. The CEU operates in Budapest but is the only international college with no overseas branch.

Foreign universities can henceforth only award degrees in Hungary if its government and, in CEU’s case, the United States sign an accord on the matter within six months of the law taking effect.

The top U.S. diplomat in Hungary said Washington was “disappointed by the accelerated passage of legislation targeting Central European University.”

“The United States will continue to advocate for its independence and unhindered operation in Hungary,” chargé d’affaires David Kostelancik said.

Hungary’s Foreign Ministry said it had summoned the German and US chargé d’affaires for Wednesday saying the new law was only meant to ensure all universities obey the laws, and “any statements to the contrary are false.”