New York Attorney General Eric Schneiderman declared fantasy sports betting sites DraftKings and FanDuel illegal.
A cease-and-desist order has been filed preventing the website operators from taking any more bets in New York.
The fantasy sites, which have no oversight or regulation, have argued that the sites constitute a game of skill rather than illegal gambling.
Much of the attention on the two sites came after employees were found to have won significant prizes.
There were questions about whether they benefited from knowledge about which athletes were selected by other players, a process potentially likened to insider trading.
Defenders of the sites have pointed out the hypocrisy of states using lotteries to raise money but banning gambling on fantasy sports.
They had already been declared illegal in Nevada, where they were ordered to obtain gaming licenses.