"There hasn't been a new synagogue constructed in Budapest for 80 years. Our town hall has contributed (to this project) by supplying the land for the construction for free," it said in a statement.
Video courtesy of jn1.tv
Building commenced on the same date as the world marked Holocaust Remembrance Day, on the anniversary of the 1945 liberation of the Auschwitz concentration camp.
The town hall said construction of the synagogue is expected to be completed in 2014.
The synagogue, built to act as both a religious and cultural meeting point, is expected to host 120 people at a time.
During the ceremony, historian Szilard Nemeth said that "like all other parts of the country, Csepel was hit by the persecution of Jews, and by World War II. According to our information, 960 people of Jewish origin were deported from Csepel."
"Only 60 returned. Some of them are still alive today," he said.
The ceremony was also attended by Cardinal Peter Biboros, Defense Minister Csaba Hende, and Israeli Ambassador Ilan Mor.
During WWII, around 450,000 Hungarian Jews were deported and murdered by the Nazis. Adding the number of Jews killed also in Hungary, the total number of deaths comes to between 550,000 and 600,000.