The 54-time champions Rangers must relaunch in the lowly fourth division of the Scottish game following a meeting of Scottish Football League clubs.
The decision completes a spectacular fall from grace for the 140-year-old Glasgow giants - Scotland's most successful club - who went into administration in February before a takeover last month by a consortium led by English businessman Charles Green.
Rangers had hoped to be admitted to the Scottish First Division, just one rung below the top Scottish Premier League after SPL clubs voted to eject them last week.
However, 25 of the 30 clubs in the Scottish Football League voted for Rangers to start life at the bottom of the footballing pyramid north of the border in the Third Division.
The decision means that it will take Rangers at least three years to return to an SPL that they and city rivals Celtic have dominated for decades.
That could have serious financial consequences since a five-year SPL television deal with BSkyB and ESPN, worth an estimated 80 million pounds ($156.7 million), was based on a minimum of four matches each season between Rangers and Celtic.
Rangers, who average crowds of over 46,000 at home stadium Ibrox, will now be playing sides such as East Stirling, whose average gate at Ochilview Park, the ground they rent from Stenhousemuir, is just 321 out of a capacity 3,776.
Rangers newco chief executive Charles Green says the club accepts the decision, they are grateful to be accepted as members of the SFL and just want to get back to playing football.
Meanwhile it has still to be decided if Dunfermline, relegated from the SPL last season, or First Division runners-up Dundee will take Rangers' place in next term's top-flight.