The Chilean football federation has banned a from using a new shirt that features the number one shaped as the map of Palestine prior to the creation of Israel.
Palestino, a club founded by the large Palestinian community in Chile, has used the new kit in three matches.
Jewish organisations had complained that the design implied that all the land was Palestinian.
As well as banning the shirt the Chilean federation also issued a fine of $1,300 (£800) to the Santiago-based club.
Palestino unveiled the new design in December, keeping the club’s traditional colours, matching those of the Palestine flag – red, green and black.
However, it replaced the number one by a map of the Palestine state that existed before partition of the region in 1947.
It was the owner of first division club Nublense, Patrick Kiblisky, who put forward a formal complaint against Palestino.
“We cannot accept the involvement of football with politics and religion,” he said.
The federation said it had decided to punish Palestino because it was opposed to “any form of political, religious, sexual, ethnic, social or racial discrimination”.
On its Facebook page, the club states: “For us, free Palestine will always be historical Palestine, nothing less.”
Palestino was founded in 1920 by members of the 500,000-strong Palestine immigrant community within Chile. It became a professional football team in 1952 and has won the league twice, in 1955 and 1978.