Porto will be limited to 22 players instead of 25 in their Champions League squad next season after breaking Financial Fair Play rules, UEFA have confirmed.
The Portuguese club have also been fined £616,000 (€700,000) after they failed to comply with the break-even requirement of FFP regulations.
The UEFA Club Financial Control Body (CFCB) Investigatory Chamber has been monitoring clubs which participated in European club competitions over the 2016-17 campaign.
UEFA may increase the fine by up to a further £1.2m (€1.4m) if Porto drag their feet on recommended changes.
Porto have been told to comply to a fiscal deficit of £26m (€30m) this year, £17.6m (€20m) next year and £8.8m (€10m) in 2019.