The Cagliari owner was recently found guilty of failing to pay import duties on a boat by an Italian court, a decision that has resulted in him failing the Football League's owners and directors' test.
Cellino's company Eleonara Sports agreed to purchase a 75 per cent in Leeds from current owners GFH Capital in February.
However, that takeover has now been blocked following a meeting of the board of the Football League on Sunday.
A Football League statement, released on Monday, read: "The Board of The Football League considered the eligibility of Massimo Cellino under its Owners' and Directors' Test.
"The Board considered detailed legal advice with regard to the application of its regulations within the context of a decision made under Italian law.
"Mr Cellino was recently found guilty beyond reasonable doubt by a court in Sardinia of an offence under Italian tax legislation relating to the non-payment of import duties on a boat. This resulted in a fine of €600,000, an order for the payment of trial costs and the confiscation of the boat in question.
"Having fully considered the matter, the Board agreed unanimously that the decision of the Italian court does constitute a disqualifying condition under its Owners' and Directors' Test.
"The relevant disqualifying condition being that Massimo Cellino has been convicted of an offence involving acts that would reasonably be considered to be dishonest.
"In line with Football League regulations, Massimo Cellino is entitled to appeal against the Board's decision within 14 days. In such circumstances, The League would seek to expedite the process to deliver certainty to all parties in the shortest possible timeframe."
Cellino, who was previously handed a 15-month suspended prison sentence in 2001 for false accounting, has previously threatened to walk away from Leeds if his bid was rejected.
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