A Reds' fan displayed the banner on Saturday which had the words "Japanese Only" written on it, with the club fielding an all-Japanese lineup against Sagan Tosu in the match.
"There are various ways of determining what constitutes discrimination," league chairman Mitsuru Murai was quoted as saying by the Kyodo news agency on Thursday.
"But what is important is not so much why discrimination occurs, but how the victim perceives it and in this case, the acts must be considered nothing short of discriminatory.
"Over the last several days... these acts have had unexpected social repercussions both domestic and abroad, and it is clear that they have damaged the brand of not just the J-League but of the entire Japanese football community."
The former Asian Champions League winners, who have an average attendance of over 37,000, had also been sanctioned in the past when their supporters taunted foreign players of the opposition.
Following Thursday's sanction, the club has banned their supporters from displaying any kind of signs and banners at future home games.
"With regards to Urawa Reds, they have had repeated trouble with their supporters in the past and the club have previously been sanctioned for racist behaviour by their fans," Murai added.
"While these most recent acts were conducted by a small group of supporters, it is with utmost regret that Urawa Reds... allowed an incident like this to happen.
"The league has strongly demanded Urawa Reds to accept this decision with the full weight of responsibility and to make sure it does not happen ever again."
- Sports & Recreation
- Urawa Reds