The Elland Road club are one of three Championship outfits - along with Blackburn Rovers and Nottingham Forest - to be placed under an embargo.
The League announced that the three clubs all incurred financial losses more than the £8m permitted during last season.
Submissions from QPR, Leicester and Burnley - who were all promoted to the Premier League - plus the three clubs relegated last season will now be considered by the Football League.
Under the terms of the embargo, Leeds can still sign players if they have fewer than 24 established players - as they currently do. They can sign players for no fee and a max of £600k in wages a year pro rata.
A statement from the Football League released on Monday morning read: “An initial analysis of Financial Fair Play submissions from the current 24 Championship clubs has indicated that three clubs – Blackburn Rovers, Leeds United and Nottingham Forest – have failed to meet the Fair Play Requirement under the division’s Financial Fair Play rules.
“Consequently, all three will be subject to an ‘FFP embargo’ under Football League regulations from January 1, 2015 for the remainder of the current campaign.
“The Football League is currently in discussions with a number of other clubs over their FFP submissions and will confirm any further FFP embargoes, if any, in due course. It will also now consider submissions from the three clubs promoted to the Premier League and the three clubs relegated to League 1 at the end of the 2013/14 season.
“Blackburn, Leeds and Forest all exceeded the maximum permitted deviation of £8m - consisting of a maximum adjusted operating loss of £3m plus a further maximum of £5m of shareholder investment - during the 2013/14 playing season.
“Each club will have the opportunity to have its FFP embargo lifted at the end of the season by demonstrating that it has stayed within the maximum permitted deviation of £6m (£3m operating loss plus £3m shareholder investment) for the 2014/15 season.”
The statement continues: “Football League has also confirmed the way in which FFP embargoes will operate for clubs placed under this sanction.
“Clubs will be prohibited from registering any new professional players (permanent contract or loan) unless they have: 24 or fewer established players (players aged 21 or over that have made at least 5 starting appearances for the club).
“Where clubs have fewer than 24 established players, they will only be permitted to sign players in the following circumstances (with the player in question being added to the club’s list of established players regardless of his age or previous playing experience): Where the employee costs of a player being signed are less than £600,000 per annum (or pro-rata if signed on a shorter contract).
“Where clubs have 24 established players, they will be permitted to trade on a ‘one out, one in’ basis but only if the employee costs of the player coming in to the club are no more than whichever is the lower amount of: 75% of the equivalent costs of the player going out, or a maximum of £600,000 per annum (or pro-rata if signed on shorter contract).
“In addition: Clubs under an FFP embargo will be permitted to sign a goalkeeper on an emergency basis (in line with existing regulations).
“Clubs under an FFP embargo will not be permitted to pay transfer fees or compensation fees for professional players.
“Clubs under an FFP embargo will not be permitted to pay a loan fee to another club, they may only pay the player’s wage (or a contribution towards it).
“For incoming players, clubs can only pay Agents’ Fees as a benefit in kind to the player in question (as long as they do not exceed the £600,000 employee costs limit).”