The new Rangers will play in Division 3, it was decided at a meeting of SFL clubs at Hampden this morning.
The decision follows a vote on the fate of Charles Green's Sevco Scotland Limited, who had already been refused admission into the Clydesdale Bank Scottish Premier League.
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Chairmen of the lower league clubs voted by a massive majority to send the newco Ibrox club into the bottom tier of Scottish football.
Twenty five out of 30 clubs voted to force Rangers into the third division after 29 agreed to their request for entry into the SFL.
But the highly controversial decision is now set to plunge the Scottish game into outright civil war, with the SPL and SFA threatening to impose an SPL2 to include Rangers just one division below the top flight.
SFL chief executive David Longmuir said the decision was one of the hardest the body had ever undertaken. He said: “We carried out a tried and tested process.”
Having been refused entry to the SPL, Rangers chief executive Charles Green was hoping to be given the green light to begin the rebuilding process from the First Division rather than the bottom tier of Scottish Football.
Despite SPL clubs refusing the newco entry into the top flight, they were also hoping for that to be the case for financial reasons with an estimated £16m black hole being threatened through TV deals and sponsorship money.
But the signs prior to the Hampden summit were that the SFL clubs weren’t prepared to have the SFA and SPL apply pressure on them or dictate what decision they would come to, and so it has proved.
The majority of the 30 clubs voted in favour of Rangers being placed in the Third Division rather than allow them to start off from a position where they could be back in the top flight within just one season.
Airdrie United and Dundee, who had previously opted to abstain due to a conflict of interest, were informed they had to cast a vote.
Rangers required at least 50% to win a place in the First Division but never got close to that target as the majority of clubs snubbed Sevco Scotland – the parent company set up by Charles Green to run Rangers – being parachuted down a tier.
Last week, SFA chief executive Stewart Regan warned Scottish football faced “a slow death” if the SFL voted Rangers into the Third Division.
To ward off that apocalyptic scenario, the SFA, the SPL and the SFL issued a radical package of reforms which would see the SPL increase to 14 teams for the beginning of the 2013/14 season, with a mechanism in place to add two more at a later date.
Changes to the size of the other leagues as well as the merging of the ruling bodies, the redistribution of monies, parachute payments, play-offs and a pyramid system are also on the agenda.
In the end, however, there was to be no trade-off. Rangers will now be forced to work their way through the decisions unless radical changes are forced with the formation of SPL2.
SFL chief executive David Longmuir said after the three-hour meeting: "The member clubs of the Scottish Football League have today voted to willingly accept The Rangers Football Club as an associate member of the Scottish Football League.
"Furthermore, the Scottish Football League's only acceptable position will be to place Rangers FC into the Third Division of the Irn-Bru Scottish Football League from the start of this season."
Longmuir also stated that he was "comfortable" with the outcome of the vote and that the decision from the SFL clubs was taken with the sport's best interests at heart.
He said: "I'm comfortable today that the Scottish Football League made a very, very decisive decision that was based on sporting fairness and I think the Scottish Football League were in the right place to make that decision.
"This decision followed a tried-and-tested process and was taken in cognisance with the other options which were available for consideration.
"Today's decision has been one of the most difficult for all concerned but it has been taken in the best interest of sporting fairness which is the fundamental principle of the Scottish Football League.
"The Scottish Football League has been entirely consistent with our willingness to work with other bodies to ensure that we focus on rebuilding our game, restoring pride in our game and exploring revenue streams and our willingness to achieve these aims does not alter."
Raith Rovers chairman Turnbull Hutton revealed that Green, Regan and Rangers manager Ally McCoist addressed the meeting and said: "It was a good meeting that was handled well and all the issues came out. There was also a good hearing for those who came into the meeting.
"The league made a decision and I think it was the right decision and the right process and I'm proud to be a member of the Scottish Football League."
A statement on the official Rangers website confirmed discussions over forming an SPL2 were still up in the air.
The statement read: "It was mooted last week that plans for an SPL2 would swing into action in the event of today's outcome but it is not known if this will be the case."
However Livingston chairman Gordon McDougall does not believe such a breakaway will take place. "I don't think there is any chance of that. We all want a 42-club solution to this situation with all 42 clubs working together for football but I have no idea what is likely to happen.
"We have made a decision, I sincerely hope the decision is respected and we go forward with Rangers in the Third Division. Ally McCoist and Charles Green were adamant that they would respect our decision."
Asked if he was surprised by the 25-5 vote he said: "Not after discussions took place. If you had asked me last night I would not have come to that figure. Discussions went well, we listened to everything that was said and we are quite happy."
Dunfermline chairman John Yorkston said it would not be a shock to see the SFA and SPL formulating plans for an SPL2, something which has already been mooted.
"That wouldn't surprise me. The 10 First Division clubs sent out a message today saying that we are looking for a 42-club solution, the vote was 25 to five so I think that was fairly unanimous."
Yorkston was echoing Longmuir's comments which made up part of the statement read to the gathered media.
Longmuir said: "Something I would like to say very clearly today is that he First Division clubs in particular made it very clear to us that they are looking for an all 42-club solution to Scottish football's restructuring issue - that was a very clear direction of the will of all SFL clubs."