The 19-year-old has returned to Liverpool after suffering a knee injury, and will have the problem assessed.
McLaughlin confirmed the injury news on social media.
"Gutted I had to pull out of the NI squad injuries always comes at the worst time, hope to be back in a couple of weeks,” he stated.
McLaughlin is the second withdrawal from manager Michael O'Neill's squad, after Brentford winger Stuart Dallas pulled out with a leg injury on Tuesday.
Dallas was replaced by Preston's Andy Little, and O'Neill will cut the squad to 23 before the Group F clash in Budapest.
Watch Northern Ireland's European Qualifier away to Hungary live on Sky Sports 3 HD on Sunday, with coverage underway from 4.45pm.