* Commission decision reinforces position of Hungarian prime minister
* Relations between Brussels and Budapest hit low ebb
BRUSSELS, July 23 (Reuters) - The European Commission has dropped legal action against Hungary's special tax on the telecoms sector, one of a battery of measures that stoked annoyance in Brussels over the prime minister's unorthodox economic policies.
The announcement on Tuesday by the European Union's executive, which is in charge of policing EU law, draws a line under a dispute with Budapest over a levy that was one of Viktor Orban's 2010 package of so-called crisis taxes.
It comes at a time when relations between Budapest and Brussels have reached a low ebb, with many officials working in the bloc's administration frustrated by the tactics used by Hungary and its leader to push through contested reforms.
The European Commission had asked Hungary to abolish its special tax on telecom operators, believing it broke EU law. It was prompted to abandon this action, however, by an unfavourable ruling from the EU Court of Justice in a similar case involving France.
If a court judgment had gone against it, Hungary might have had to pay back millions of euros in telecommunications revenues.
The decision to back down will reinforce Orban's unorthodox policies that have included Europe's highest bank tax and renationalising billions of euros worth of private pension fund assets.
Central Europe's most indebted nation was pulled back from the brink of bankruptcy with a 20 billion euro rescue package from the IMF and the European Union amid the global crisis.
Shortly after taking office in 2010, Orban abruptly ended that programme, initiating a campaign that included the bank tax and other levies on business.
Major telecommunications companies active in Hungary include Magyar Telekom, a unit of Germany's Deutsche Telekom AG, as well as local arms of Britain's Vodafone Group Plc and Norway's Telenor ASA.