London Welsh said they are "extremely disappointed" by The Rugby Football Union's decision to remove the club from English rugby's professional ranks.
In a statement, the club believe they have met the required criteria to remain in the Championship.
The RFU declared Welsh's position in the second-tier Championship "untenable" yesterday after the club failed to convince England's governing body of a sound future financial footing.
The Dragons have confirmed that Lyn Jones will be their new director of rugby.
The 49-year-old left his position as head coach of London Welsh last week, saying he wanted to return to Wales to be closer to his family.
He has previously coached the Ospreys, and worked as a consultant with the Dragons in 2009.
Darren Edwards will stay at Rodney Parade as head coach, with Robert Beale moving from rugby director to team manager.
Dragons chairman Martyn Hazell said: "Last season was a difficult one for us at the region, but having brought our finances under control, we are looking to build our team for the future."
"With some key signings made during the off-season, we are confident that Lyn has the experience and expertise to support our coaching team and ensure that we get the very best out of our group of young, talented players."
London Welsh are facing relegation from the Aviva Premiership after losing 14-31 to Northampton - their 10th successive league defeat - leaving them at the bottom of the table. Their only hope of survival is if the Championship title winners do not meet Premiership entry criteria.
The defeat follows reports that the club's majority shareholder Kelvin Bryon intends to pull out of the club claiming he had "had enough" of Premiership Rugby and the Rugby Football Union.
London Welsh say they are "extremely disappointed by the Independent Appeal Panel’s decision" to uphold the five-point deduction and £15,000 fine against the club, for fielded an ineligible player, Tyson Keats, in ten Aviva Premiership matches this season.
The decision means that the club remain five points adrift at the bottom of the Aviva Premiership.
In a statement London Welsh said that the RFU's decision to remove the additional suspended five-point penalty imposed until the end of the 2013-14 season, justified their decision to appeal.
London Welsh have lost their appeal against a five-point deduction and a £15,000 fine for fielding an ineligible player in the Aviva Premiership, the Rugby Football Union has announced on Twitter.
London Welsh must wait to discover the outcome of an appeal against a points deduction and £15,000 fine following a hearing in London today.
The Rugby Football Union announced tonight that a decision will be considered and 'communicated in due course'.
London Welsh appealed a panel of inquiry's decision earlier this month to deduct them five league points, issue a fine and impose a further five-point deduction suspended until the end of next season.
London Welsh have confirmed they'll appeal a decision to deduct the club ten league points and fine it £15,000 over the fielding of an ineligible player.
In a statement this evening, the club calls the decision 'extremely harsh under the circumstances'.
London Welsh have been fined £15,000 and given a deduction of five points for fielding an ineligible player.
The findings were announced on Thursday night following a hearing of the Rugby Football Premiership regulations panel on Tuesday.
The club had a further five-point deduction suspended until the end of next season, and now fall to the bottom of the Premiership.
London Welsh was penalised for fielding scrum-half Tyson Keats, who appeared despite not holding effective registration with the RFU.