UPDATE 2-Polish PM says extra summit may be needed to unblock EU budget

* Poland and Hungary block EU budget and recovery fund

* EU leaders will discuss the dispute at a summit this week

* Hungarian and Polish prime ministers set to hold talks (Adds details, quotes)

By Alan Charlish and Krisztina Than

WARSAW/BUDAPEST, Dec 8 (Reuters) - The European Union may need to hold an extra summit to secure agreement on its planned economic recovery fund and budget, Polish Prime Minister Mateusz Morawiecki said on Tuesday.

Poland and Hungary are blocking 1.8 trillion euros ($2.18 trillion) in funding because they oppose a clause linking the release of funds to the rule of law.

EU leaders will try to resolve the dispute at a summit that starts on Thursday in Brussels but Morawiecki gave no sign that Budapest and Warsaw would back down.

"It may happen that another summit will be necessary... maybe there will be more long months of negotiations and a possible provisional budget. No scenarios should be ruled out at this stage," he told a news conference in Warsaw.

A Polish government spokesman said Hungarian Prime Minister Viktor Orban would meet Morawiecki and Jaroslaw Kaczynski, leader of Poland's governing nationalist party, in Warsaw later on Tuesday but gave no details.

The European Commission, the EU executive, has criticised the two countries over policies which it says limit media freedoms and the independence of the judiciary.

If the EU receives no signal that Poland and Hungary will drop their vetoes, it will have to go ahead without them, an EU diplomat said.

Under this scenario, the EU's 750 billion euro recovery fund of grants and loans would be set up for just 25 member states, without Poland and Hungary, so that others get the cash needed to help lift their economies out of the 2020 coronavirus slump.

This would mean the EU's next long-term budget of 1.1 trillion euros would remain blocked, and the EU would finance itself through a provisional budget in 2021 that would stop spending on new projects and cut funds even for existing ones.

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This would hit Poland and Hungary hard as they are large net beneficiaries of EU funds, but their nationalist leaders have presented the issue domestically as a matter of sovereignty.

Many religious conservatives in Poland see tying funds to the rule of law as a first step to forcing the country to accept liberal policies in other areas.

Orban's government has linked the issue to immigration, stepping up its anti-immigration rhetoric and saying Brussels wanted to force Hungary to accept migrants.

Germany's Europe minister, Michael Roth, said efforts were being made to reach a solution but that "there can be no change to the rule-of-law mechanism."

Gunther Krichbaum, a senior member of Germany's Bundestag, said the EU "must not let down countries such as Italy, France or Portugal that have been badly affected" by COVID-19.

According to a statement on the website of the European Commission in Budapest, Hungary's budget would receive at least a net 4 billion euros under the coronavirus recovery fund.

A European Commission source said the net benefit to Poland would be around 286 billion zlotys (64.24 billion euros). (1 euro = 4.4521 zlotys) ($1 = 0.8259 euros) (Reporting by Alan Charlish, Pawel Florkiewicz and Joanna Plucinska in Warsaw, Krisztina Than in Budapest, Andreas Rinke in Berlin; Editing by Chizu Nomiyama and Timothy Heritage)