Durham have been relegated from the top flight of the County Championship, with Hampshire staying up in their place, after being hit with a penalty for receiving financial support from the ECB during the 2016 season. They will begin 2017 in Division Two with a 48-point penalty in return for a £3.8m bailout.

The club has accepted it will no longer be allowed to bid to host Test matches at Chester-le-Street, although they will be eligible for ODIs and T20 internationals. Durham will also start next season with -4 points in the NatWest T20 Blast and -2 points in the Royal London Cup; hand back non-player related ECB prize money for 2016; and be subject to a more closely controlled salary cap until 2020.

The financial aid package, which has been agreed between the ECB and Durham's board, is aimed at allowing the club to cover its operating costs, settle a proportion of outstanding debt and focus on restructuring.

"We've been working with Durham County Cricket Club throughout the year on how best to address their financial issues; we welcome the club's willingness to review its business model and management structures," Tom Harrison, the ECB's chief executive, said.

"There is no doubt that a strong, financially robust Durham has a vital role to play in developing England talent, enriching our domestic competitions and underpinning the wider growth of the game in the north east.

"The financial package and associated conditions approved by the ECB Board reflect the unprecedented seriousness of Durham's financial situation. To help them through these difficulties and continue as a first-class county, this had to be addressed with immediate, practical financial assistance. We also have a wider responsibility to the whole game and need strong deterrents in place to preserve the game's integrity and financial stability.

"Durham have made a strong contribution to the game as a first-class county, through domestic competitions, local participation and producing fine England players. We now look forward to working productively with the new Board of Directors in the restructured company and supporting a healthy future for Durham and the game in the north-east."

After enduring a troubled campaign on and off the field, Durham appeared to have secured their Division One status with back-to-back victories in their final two games of the season, over Surrey and Hampshire, who finished 45 points behind them in eighth place and were initially relegated alongside Nottinghamshire.

However, to retain their viability, Durham had to call upon assistance from the ECB - including an accelerated annual fee payment of £1.3m, as well as the rescheduling of their £923,000 staging fee for the second Test against Sri Lanka in May - to help service debts to the local council, believed to be in the region of £5-6 million.

The ECB spent the past week considering whether a sanction should be imposed. A points deduction was eventually deemed to be the only realistic option available to the board, given that a financial penalty would merely have exacerbated the club's issues.

"We are clearly disappointed at the position we are in and the sanctions we have accepted, particularly for the players and staff who have worked so hard to keep us in the first division," David Harker, the club's chief executive, said.

"However, we continue as a first-class county, will host international cricket and have a platform to stabilise and develop Durham County Cricket Club. It is important that the club addresses its serious financial challenges and puts the business on a sustainable footing and therefore we have had to accept the conditions offered by ECB.

"Other counties have faced serious financial challenges but have been able to find other solutions including private investors without this reliance on ECB. We will continue to work with the ECB to promote cricket in the North East and are committed to securing a successful sustainable future for Durham."

There is no suggestion of financial impropriety at Durham, and other Test-match grounds have accrued greater debts in the course of modernising their venues. However, the club's remote location has made it harder to diversify and generate the sort of revenues that keep their rivals solvent.

The club, which won the County Championship three times in six seasons between 2008 and 2013, has proven itself to be one of the most successful counties in terms of producing England players, with Ben Stokes and Mark Wood among the most recent examples. However, in a sign of potential struggles to come, they have lost two of their most influential batsmen of recent seasons, with Scott Borthwick and Mark Stoneman choosing to move to Surrey.

In a statement, Hampshire said that the club "deeply regrets the situation that Durham finds itself in and sends its sincere sympathies to the club, its players, staff and of course its loyal supporters".

The club chairman, Rod Bransgrove, added: "I also fully endorse the support of ECB in helping one of its 18 first-class stakeholders to survive in the long-term and am satisfied that the sanctions imposed as a result of Durham's circumstances are fair and have been well considered. Of course, the fact that Hampshire benefit from all of this is fortuitous for the club and will give us all a great boost as we plan for next summer.

"Given the unprecedented list of injuries that we faced this year, I believe that we will not discredit the first division next season and I am very much looking forward to seeing what the 2017 campaign will bring with a full-strength and enhanced Hampshire squad."