The NRL said the club had been "operating a system designed to enable it to exceed the salary cap without detection and give its team an unfair advantage" since at least 2013.
"Regrettably, the results (of the investigation) at this stage are not only disappointing, they are a stain on our game," NRL chief executive Todd Greenberg told reporters in Sydney on Tuesday.
"This is a tough day for the game. A truly heartbreaking day, particularly for Parramatta fans and their players.
"Based on the information we currently have, we believe the system was conducted with the knowledge and support of the club's board and senior executive."
The NRL's punishment also proposes de-registration of five of the club's senior officials, including its chairman, CEO and Football Manager.
The sanction erases all Parramatta's points accrued in the current season, leaving the four-times NRL champions with only a sliver of hope of making the playoffs.
The club would be given a chance to respond to the NRL's breach notice before the final punishments were confirmed, the league said.
Greenberg said the club had been fined for salary cap breaches in five of the past six seasons.
The scandal has been compared to the massive salary cap scam by rival NRL club Melbourne Storm, which saw the franchise stripped of its 2007 and 2009 titles and unable to play for championship points in the 2010 season.
(Reporting by Ian Ransom; Editing by John O'Brien)
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