Chelsea have been banned from signing any players until 2011.
Football's world governing body Fifa found that in 2007 Chelsea — then managed by Jose Mourinho — "induced" French teenager Gael Kakuta to break his contract with his team Lens.
The west London club have been told they cannot buy players during the next two transfer windows in January and next August, so new Chelsea manager Carlo Ancelotti, who only made one big summer signing this year — £18 million Russian midfielder Yuri Zhirkov — will not be able to bolster his squad until January 2011.
Lens complained to Fifa after Chelsea signed the then 15-year-old Kakuta for just £20,000 in April 2007. Fifa agreed there was a breach of contract.
Kakuta, now 18, must pay Lens £682,000 in compensation and is barred from playing for four months.
Chelsea are banned from "registering any new players, either nationally or internationally" and must also pay Lens £113,000.
Chelsea fans today threatened a mass protest.
One writing on the club's official website urged others to join in a protest "like turning our backs to the Champions League anthem".
Others complained Chelsea were being treated unfairly.
One wrote: "Nice of FIFA to make its decision after the transfer window has closed so we didn't have the opportunity to do some panic buying to see us through the next 18 months."
There was no immediate reaction from Stamford Bridge but Chelsea are thought almost certain to appeal to the Court of Arbitration for Sport.
Italian club Roma were banned for two transfer windows for signing Phillipe Mexès from French club Auxerre in 2004 but the penalty was dropped on appeal after one window.
Swiss side FC Sion were given a year-long ban for a similar offence in April.
