The players from China, South Korea and Indonesia lost matches at the London Games to get easier rivals in the playoffs, the Badminton World Federation said.
"Sport is competitive," said IOC Vice-President Craig Reedie, the former head of the international badminton federation. "If you lose the competitive element, then the whole thing becomes a nonsense."
China did not challenge the decision. South Korea and Indonesia appealed the disqualification, but the federation rejected the South Korean appeal and Indonesia withdrew its challenge.
The Chinese were accused of starting the problem by deliberately losing a game Tuesday night. This led to other teams behaving in a similar way to try to force an easier quarter-final draw. At one stage both teams appeared to be trying to lose a game. The crowd caught on, and booed.
"Depressing. Who wants to sit through something like that?" said Sebastian Coe, chairman of the Olympic organizing committee.
The International Olympic Committee said it would allow badminton's ruling body to deal with the controversy.
"We have full confidence in the federation to take any necessary steps," IOC spokesman Mark Adams said. "They have the experience to deal with such issues."
Teams blamed the introduction of a round-robin stage rather than a straight knockout tournament as the main cause of the problem. In the round-robin format, losing one game can lead to an easier matchup in the next round.
It was not all bad news for China, which took golds in diving, women's 200 butterfly and table-tennis on Wednesday. It also swept the gold and silver medals in the men's 77-kilogram weightlifting category. The weightlifting winner, Lu Xiaojun, combined his gold with setting snatch and total world records.
In evening swimming, the United States picked up two golds: Nathan Adrian won the men's 100 freestyle, and the U.S. women's team came first in the 4x200 freestyle relay.
Earlier, Rebecca Soni set a world record in the 200-metre breaststroke semifinals. Soni timed two minutes 20.00 seconds, shaving 0.12 seconds off the previous mark set by Canadian Annamay Pierse at the 2009 world championships in Rome in a now-banned bodysuit.
Daniel Gyurta of Hungary won the men's 200 breaststroke in world record time, and Jiao Liuyang won the 200 butterfly for China.
It was a good day for the host nation: British rowers Heather Stanning and Helen Glover won the country's first gold medal in women's pair, and Tour de France champion Bradley Wiggins earned Britain its second in the men's time trial a few hours later.
American Kristin Armstrong won her second straight Olympic time trial gold medal, covering the 29-kilometre course south of London in 37 minutes 34.82 seconds. Judith Arndt of Germany took the silver and Russia's Olga Zabelinskaya picked up her second bronze of these games.
In Olympic basketball, Emilie Goubis scored 16 points and Isabelle Yacoubou added eight of her 14 in the fourth quarter to help France advance to the women's quarter-finals with a 64-60 victory over Canada.
In other morning rowing, Germany's powerful eight-man crew crossed the line first for its first win in the high-profile event since the country was unified in 1990. Canada took silver and Britain settled for the bronze.
And New Zealand's dominant men's pair, Hamish Bond and Eric Murray, qualified quickest from the semifinals at the Olympic rowing regatta at an overcast Eton Dorney, beating second-place Italy by nearly eight seconds.
The British crew of George Nash and William Satch won the other heat. But Bond and Murray have not lost in four years as a pair, and anything other than a Kiwi win in the final would be a big surprise.
Judo competitions yielded a gold for South Korea in the men's 90-kilogram category, and one for France in women's 70-kilogram category. North Korea took a gold medal in women's 69-kilogram weightlifting division.
In tennis, Venus Williams lost her third-round match at Wimbledon, but still has a shot at a fourth Olympic gold with sister Serena in doubles. They play in the quarterfinals Thursday.
Williams lost to Germany's Angelique Kerber 7-6 (5), 7-6 (5). She had looked sharp in the first two rounds of singles this week. But playing twice a day proved too much for Williams, who was diagnosed last year with an autoimmune disease that causes fatigue.
Roger Federer, American John Isner, Kei Nishikori of Japan and Maria Sharapova all advanced to the quarter-finals.
In men's gymnastics, Japan's Kohei Uchimura added Olympic gold to the world titles he's won the last three years, and it was never much of a contest. Uchimura's score put him well ahead of silver medallist Marcel Nguyen of Germany. Danell Leyva closed with two of the most spectacular routines of the day, on parallel bars and high bar, to land in third place.
Venezuela's Ruben Limardo won gold medal in men's individual epee, topping Norway's Bartosz Piasecki 15-10 in the title bout. Jung Jinsun of South Korea won the bronze.
A fatal accident near the Olympic Park cast a gloom over the evening events, as London's Metropolitan Police said an Olympics bus had hit and killed a 30-year-old bicyclist, temporarily stopping bus transportation in and out of the park.
Wednesday also brought some light moments.
London's portly mayor, Boris Johnson, got stuck on a zip wire at east London's Victoria Park after he lost momentum about three-quarters of the way across.
"Can you get me a rope? Get me a rope, OK?" he was heard shouting good-humoredly in a video posted to the ITV News website.
A happy crowd below snapped photos and laughed.