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Nottingham Forest have been docked four points for breaching Premier League financial rules, the English top flight announced on Monday, dropping the club into the relegation zone.

The Premier League said in a statement that Forest had admitted breaching the profitability and sustainability rules (PSR) threshold of £61 million ($77.5 million) by £34.5 million.

They are the second top-flight team to be penalised for PSR breaches this season after Everton were hit with a 10-point penalty in November, which was reduced to six on appeal.

The Goodison Park club are still waiting to discover if they will be hit with another points penalty relating to a second charge.

Forest's punishment means they drop into the bottom three, one point behind Luton and four adrift of Everton.

Clubs are usually allowed maximum losses of £105 million over a three-year assessment period but this is reduced by £22 million per season for any seasons within the period spent in the Championship.

Nottingham Forest's Greek co-owner Evangelos Marinakis reacts during the English FA Cup fifth round football match between Nottingham Forest and Manchester United. (AFP photo)

Forest were promoted to the Premier League in May 2022, meaning two seasons of their three-year assessment period were as a Championship club.

The two-time European champions could appeal the punishment, with the Premier League previously saying the process should "conclude no later than and if possible, some time before 24 May", which is five days after the final weekend of the top-flight season.

The club issued a statement in January after they had been charged, saying they were "confident of a speedy and fair resolution".