Pro-government conservative commentator Andras Bencik applauded the decision, suggesting the mental health of its citizens would be improved by not taking part in the "homosexual flotilla."
"Many young people thought that this is something for people under 18, but at this event the destruction of public taste takes place with screaming transvestites and bearded women," he said referring to Austrian drag performer Conchita, who won Eurovision in 2014.
The European Union's chief negotiator Guy Verhofstadt said the decision was blatantly homophobic.
"Even Putin shows more restraint in his homophobia. It's an attack on our European way of life and it must stop," he tweeted.
The government, led by far-right Prime Minister Viktor Orban, has opposed same-sex marriage and promoted traditional family values, announcing incentives for heterosexual couples to have more children earlier this year.
Members of the ruling Fidesz party have also linked same-sex marriage with paedophilia and called for a boycott on Coca-Cola after the soft drink company used gay couples in an advertising campaign with the slogan "zero sugar, zero prejudice".
Hungary competed in this year's Eurovision song contest in Tel Aviv, Israel, but did not qualify for the grand final.
Broadcaster MTVA has previously run a competition to select the country's representative.
It plans to go ahead with the local competition, but instead of going onto compete in Eurovision, the winner will be featured in domestic festivals.