The village in central India where more than 1,000 men and women stood and watched as a 65-year-old woman burned herself alive in a revival of the ancient Hindu practice of suttee, or widow sacrifice, will be stripped of all financial aid from the government for two years.
The Chief Minister of the Madhya Pradesh government, Digvijay Singh, said the punishment was meant 'to convey a message to society as a whole'.
Mr Singh said the state government had also asked the federal government not to provide any financial assistance to the local council running the village, Patna-Tamoli.
Disciplinary action against the village's state employees, who failed to stop the woman from throwing herself on her husband's funeral pyre, was also being considered, he said.
Meanwhile, the National Commission for Women is considering imposing a collective fine on Patna-Tamoli as a way of ensuring it does not happen again.
Reports vary, but it appears the woman, Kuttu Bai, who had been estranged from her husband for many years, was persuaded to immolate herself by villagers who believed that such an act of sacrifice would bring them all good fortune. Villagers also insisted that much-needed rain would fall now that suttee had occurred.