Mallya as well as former senior USL official Ashok Capoor have also been restrained from holding directorship in any listed company.
Further, Sebi has asked USL, from where Mallya resigned as director and chairman in March 2016, to provide details about steps being taken to recover the diverted funds.
Sebi has restrained Mallya and six others from the securities market and also from "buying, selling or otherwise dealing in securities in any manner whatsoever, either directly or indirectly" till further directions.
Mallya and Capoor have been restrained from "holding position as directors or key managerial persons (KMPs) of any listed company".
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The market regulator's order also comes close on the heels of CBI naming Mallya, Kingfisher Airlines and nine others in the charge sheet related to the 2015 loan default case.
Sebi is also examining the settlement agreement between Mallya and Diageo as well as the role of auditors in the non- detection of diversion of funds from USL.
"Aspect of change in control of USL" that followed the pact between Diageo and Mallya is being examined separately.
The funds were diverted during the period between 2010 and 2013. As per PwC-UK report, the diverted amount is Rs 655.55 crore while E&Y report estimated the money at Rs 1,225.24 crore, according to details cited in the order.
In a 32-page order, Sebi Whole Time Member S Raman said the alleged prima facie violations observed in the case are serious and have larger implications on the safety and integrity of the securities market.
"Investors might have based their investment decisions on the manipulated books of accounts prepared and presented by these persons.
am surprised by these media reports. Neither have I had any communication with SEBI nor have I ever been afforded a hearing before this purported action has been taken. I have always strongly denied all allegations made by USL.