The Nippon Badminton Association threw the book at the 21-year-old world No 2, banning him from competition indefinitely, after an emergency meeting to decide the player's fate.
Team-mate Kenichi Tago, also found guilty of placing illegal bets, was removed from the organisation's official player list for an indefinite period.
Momota became the first Japanese man to win a world championship medal with a bronze in Jakarta last August and had been tipped to challenge for the title in Rio.
"It is important to take a resolute stance against players guilty of illegal acts," Zeniya told reporters, while leaving the door open to a possible Olympic return for Momota at the 2020 Tokyo Games.
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"The possibility (of competing at the Tokyo Olympics) is not zero. We want them to fully understand the seriousness of the situation."
Gambling is largely illegal in Japan. The incident comes after a betting scandal that sent shockwaves through the country's most popular sport, baseball, just as it is bidding for inclusion in the 2020 Tokyo Olympics.
Tago, a six-time Japanese champion, spent almost $100,000. Momota's absence in Rio will be a major blow to Japan's medal hopes. He backed up his strong showing at the world championships by becoming the first Japanese player to win the Super Series Masters Finals in Dubai last December.
People found guilty of gambling in Japan can face jail terms of up to five years. Publicly-operated gambling for sports such as horse racing and "keirin" bicycle racing is not illegal.