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3 October 2016, 15:25 | Updated: 3 October 2016, 15:26
Durham have been relegated from Division One of the County Championship and will begin next season with an additional 48-point penalty.
The sanction has been agreed with the England and Wales Cricket Board as a condition of £3.8million of financial support from the national governing body.
Durham's demotion from the top flight of domestic first-class cricket means Hampshire will remain in Division One instead next summer.
It was first revealed last week that Durham may face relegation as they and the ECB seek a solution to the club's financial difficulties.
An ECB statement on Monday afternoon confirmed relegation and a series of further measures.
They include the return of all 2016 prize money, the imposition of a revised salary cap up to April 2020 - reviewed annually by the governing body - and respective 4 and 2 point penalties in next summer's NatWest Blast and Royal London Cup.
Durham will also no longer be able to apply to stage Test matches at Emirates Riverside, until further notice - although limited-overs internationals, including a Twenty20 next summer, can still take place there.
The ECB statement read:
"The England and Wales Cricket Board today announced that Durham County Cricket Club has accepted an offer of significant additional financial support from ECB in order to manage current and historic debt and revenue issues.
"ECB has been working with the board and chief executive of the county and its stakeholders throughout 2016 in order to ensure that Durham could address their financial issues. This support has included advancing an annual fee payment of £1.294 million. There has been no direct investment to date.
"The £3.8 million financial aid package - which has been approved by the ECB board and accepted by the board of Durham CCC - will allow the club to meet ongoing salary, HMRC and operating costs, settle a substantial debt to a secured creditor and focus on the restructuring and future sustainability of the County Cricket Club."
Durham's 2016 prize money will be retained by the ECB until all the club's debts have been settled, and future redevelopment at Chester-le-Street can take place only after prior agreement with the governing body.
The ECB has set aside £2million of Durham's debt following the agreement that the county can no longer stage Tests.
ECB chief executive Tom Harrison said:
"We've been working with Durham County Cricket Club throughout the year on how best to address their financial issues; we welcome the club's willingness to review its business model and management structures.
"There is no doubt that a strong, financially robust Durham County Cricket Club has a vital role to play in developing England talent, enriching our domestic competitions and underpinning the wider growth of the game in the north-east.''
Durham's financial situation is one of "unprecedented seriousness'', according to Harrison - who added:
"To help them through these difficulties and continue as a first-class county, this had to be addressed with immediate, practical financial assistance
"We also have a wider responsibility to the whole game and need strong deterrents in place to preserve the game's integrity and financial stability.
"Durham have made a strong contribution to the game as a first-class county, through domestic competitions, local participation and producing fine England players. We now look forward to working productively with the new board of directors in the restructured company and supporting a healthy future for Durham County Cricket Club and the game in the north-east.''
Durham, English cricket's newest first-class club after achieving the status 25 years ago, went on to win the county championship three times between 2008 and 2013.
They have also provided a string of England players - including Paul Collingwood, who led his country to its only global trophy to date at the 2010 ICC World Twenty20 - and the county is currently home to charismatic international all-rounder Ben Stokes.
England crowdpleaser Stokes signed a new contract at the club just last week, and prolific opening batsman Keaton Jennings did likewise recently.
But two other linchpin players - Scott Borthwick and Mark Stoneman - have both moved to Surrey for next season.
Responding to the terms agreed with the ECB, a club spokesman said:
"The Durham County Cricket Club board welcomes the ECB's long-term commitment to safeguarding first-class cricket in the north-east.''
Durham appeared to have safeguarded their Division One status with victory at home to Surrey last month.
They then also won their final match of the summer at Hampshire to send their hosts down.
Instead, however, it is Hampshire who will be playing in the top flight again next summer - while Durham's prospects of bouncing back will be slim, thanks to their 48-point deficit.