The Australian Communications and Media Authority handed down the fine after an investigation found Tabcorp accepted 854 in-play bets across 69 tennis matches between April and October 2023.
Online in-play bets, where punts are made on a sporting match during the event, are illegal in Australia.
The investigation found the illegal bets were accepted due to a bug in Tabcorp's system, although it was not rectified for a further six months.
Online in-play bets made during a match are illegal in Australia. (Julian Smith/AAP PHOTOS)
Carolyn Lidgerwood from the authority said the ban on in-play bets was designed to protect problem gambling.
"In-play betting increases access to gambling opportunities and exacerbates the risks of gambling harm, as people can place bets with high frequency on multiple outcomes during sporting events," she said.
"There has been significant growth in online sports betting in recent years and it's important all online wagering services have systems in place so that illegal in-play bets are not accepted."
The authority said Tabcorp had previously been issued a formal warning about in-play bets, after the wagers were accepted during a US college basketball game in November 2021.
A Tabcorp spokesman said the company had improved measures to reduce the risk of in-play bets being accepted.
"Tabcorp accepts the fine handed down by ACMA and acknowledges our systems at the time failed to prevent these in play bets being accepted," the spokesman said.
"We continue to work with all regulators to improve harm minimisation tools so we can provide the safest sports entertainment experience we can.
"All best wrongly accepted by Tabcorp at the time were voided and funds returned to customers."
Ms Lidgerwood said the company had a responsibility to stop illegal bets from taking place.
"Tabcorp is a major wagering operator and it is concerning that it took some six months for the system error to be identified and fixed," she said.
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