The Zhejiang College of Sports, which Sun is affiliated to, suspended the swimmer following the latest incident to taint the reputation of the world record holder.
"First of all, he should thoroughly reflect of what he has done. Then he will have to resume systematic training," Zhang Yadong, vice president of the college, was quoted by Xinhua as saying. "Only after a long period of training during which he can abide by the rules, can we consider to reinstate him."
Police have given Sun seven days of "administrative detention" - which means he will be held in a detention centre - and an unspecified fine, Xinhua said on Monday, citing Hangzhou police. It provided no other details.
The report said Sun was driving a Porsche Cayenne SUV he said he had borrowed from a relative when a bus hit him from behind.
Hangzhou police then discovered he could not produce a driver's license, it added.
"The punishment is severe but we are doing this for his own good," Zhang was quoted as saying by the news agency. "We hope he can always be the hero of Chinese sports instead of a sinner."
Sun shot to fame after becoming the first Chinese man to win an Olympic swimming gold medal, transforming him into one of the country's most sought-after sportsmen.
While Sun, like other Olympic champions, is a popular sports figure in China, this is not the first time he has been in trouble, with Xinhua noting his "stained" personal life, including gossip about his love life and clashes with reporters.
(Reporting by Sui-Lee Wee, editing by Amlan Chakraborty)
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