The Melbourne Storm have been stripped of two premierships, three minor premierships and fined a total of $1.6 million for massive breaches of the NRL's salary cap rules.

They have also been stripped of all competition points accumulated this season and will not be playing for points for the remainder of the campaign.

NRL chief executive David Gallop addressed a media conference in Sydney, outlining that an audit had found the Storm had been operating two sets of books to hide breaches from salary cap auditor Ian Schubert.

Additional payments amounted to $1.7 million over five years and $700,000 in 2010.

"They had a long-term system of effectively two sets of books and the elaborate lengths they have gone through to cover this up has been extraordinary," Gallop said.

"The club has furthermore been fined $500,000 and will be forced to return $1.1 million in prize money, with it being distributed evenly among the other 15 clubs."

While the Storm will lose their titles from 2007 and 2009, Gallop said neither losing grand finalists Manly or Parramatta will assume those titles.

He said the Storm would have noted what happened in 2002, when the Bulldogs were stripped of 37 competition points and fined $500,000 for breaching the cap.

"The rules are the rules, everyone in this competition knows them. Particularly after the Bulldogs, they knew the risk they were taking," Gallop said.

"There's no alternative for the NRL in terms of penalties."

When asked whether there would be legal implications for those involved, Gallop replied: "Most certainly."

Storm coach Craig Bellamy said in a statement that he was unaware of the breaches.

"This is an absolute shock to myself, to our football staff, to our players," he said.

"Personally I am heartbroken. But this football club has great character and values. We will not walk away from this challenge.

"We will stick tight together as a group and fight our way back from this."

John Hartigan, chairman and chief executive of club owner News Limited, said the deception had been concealed from his organisation.

News has appointed accounting firm Deloitte to conduct a forensic audit of the club's accounts, stood down two senior staff believed to be involved and hired respected administrator Frank Stanton to move in as caretaker chief executive.

"Today is a regrettable day in the history of the game," Hartigan said.

"I don't think there will be a league fan anywhere who is not outraged by what appears to be a highly orchestrated, deeply deceptive fraud in which there was systematic and deliberate concealment of unlawful payments to certain players over an extended period."

The investigations revealed the Storm maintained a dual-contract system, with the club confirming that side letters promising extra payments were stored in a secret file.

"The breakthrough in the investigation was the discovery by the salary cap auditor (Ian Schubert) of a file in a separate room at the Storm to the room which contained the file with the player's contracts, outlining the payments to the players not disclosed to us," he said.

"It was through this system that they were able to attract and retain some of the biggest names in rugby league.

"The results of their practices on the field speak for themselves."

Gallop said the Storm need to quickly find a way to rectify the situation to have any chance of regaining their status in the league.

"Certainly by the 2011 season they need to be operating within the salary cap and how they do that I'm not sure at this stage," he said.

Sportingbet Australia reacted immediately to the news by slashing the Storm's wooden spoon odds from $250 into $1.01.