The Rugby Football Union's board of directors ratified findings of a report carried out by independent auditors that identified various failures, including not having primacy of tenure at their nominated Premiership ground - Oxford United's Kassam Stadium.
The RFU verdict was announced just six hours before London Welsh contest the Championship final first leg against Cornish Pirates in Penzance, and means that Premiership bottom club Newcastle will retain their top-flight status next term subject to any successful London Welsh appeal.
The Exiles, who seem certain to appeal, must lodge any protest within 14 days. The Pirates did not choose to have an independent audit of their Mennaye Field ground, so with London Welsh also failing to satisfy demands it means there will be no promotion from the Championship this term.
Newcastle propped up the Premiership by a point despite winning their final game of the 22-game regular league season against fellow strugglers Wasps earlier this month.
But the Falcons have now survived and they can look forward to the 2012-13 campaign when Dean Richards will take charge as rugby director. Newcastle have already made seven new signings.
In a statement, the RFU directors said: "The Rugby Football Union's board of directors has considered the findings of the independent audit report requested by London Welsh, which determines a club's eligibility for promotion to the Aviva Premiership in line with the minimum standards criteria (MSC).
"The report, carried out by independent auditors, found that London Welsh has not met the MSC for the Aviva Premiership.
"The independent auditors identified various failures, including not having primacy of tenure at their nominated ground. This states that a club must demonstrate that they can host home fixtures at the time stipulated by Premiership Rugby and/or the host broadcaster.
"The RFU board ratified the findings and agreed, should London Welsh win the RFU Championship final following the second leg on May 30, they would not be eligible for promotion and Newcastle Falcons would remain in the Aviva Premiership.
"Cornish Pirates did not choose to have an independent audit of the Mennaye Field and so do not fulfil the criteria for promotion should they win the final. As a result, there will be no promotion from the RFU Championship this season.
"London Welsh have the right to appeal and would be required to do so within 14 days of this decision."
The minimum standards criteria are set by the Professional Game Board (PGB) - a joint group from the RFU, Premiership Rugby, RFU Championship clubs and the Rugby Players' Association.
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