The online sale of lottery tickets was banned yesterday by a circular jointly issued by the Ministry of Finance, the Ministry of Civil Affairs and the General Administration of Sports.
Telecommunications regulators will punish those caught selling tickets online and violators could face prosecution.
Wang Xuehong, head of Peking University's research institute of the lottery, said online sales of lottery tickets pose many problems because it is difficult for buyers to distinguish legal websites from illegal ones.
"It's impossible to know whether a website will actually buy lottery tickets for people after they hand over their money," Wang said.
He said such websites are also difficult to regulate.
Private operators have been caught masquerading as State-run lotteries on the Internet and some websites have provided illegal channels for gambling on sports and the underground Mark Six.
The ban is one of several steps that have been taken to crack down on lottery fraud and the malpractice that has haunted the lottery industry.
Some 363 billion yuan ($49 billion) worth of lottery tickets were sold in 2006.
Last month, the Legislative Affairs Office (LAO) of the State Council said the first regulations for the fast-growing lottery industry will be issued this year to stamp out fraud, which has become increasingly serious since the first lottery was held in the country two decades ago.
Legislators will draw on the experience of other countries and regions when drafting the regulations, which will cover distribution, sales, announcement of results and management of funds, Ding Feng, deputy head of the LAO's department of political science and law, labor, social security and legislative affairs, said.
"Other countries and regions put laws in place before they started holding draws. China did the opposite," he said.
"The lack of laws and regulations has become a significant factor impeding the sound development of the industry."
A provisional regulation governing the distribution and sale of tickets, issued by the Ministry of Finance in 2002, is the industry's only rule.
The authorities started work on a national regulation more than a decade ago, but divisions between different government departments have hampered its implementation.
Fraud and malpractice have become regular occurrences in the absence of formal regulations.
In November, a 36-year-old lottery ticket vendor in Anshan, Heilongjiang Province, was jailed for life for taking advantage of a flaw in the Welfare Lottery "3D" system, allowing him to rake in 28 million yuan in lottery winnings.
In 2004, several people were jailed for manipulating a scratch-and-win sports lottery in Xi'an, Shaanxi Province. The incident involved a ticket contractor cheating his way to the top prizes by marking tickets and employing four people to falsely claim the prizes.