Kelly in 2013 founded the group Ordain Women, which has pushed for gender equality and has appealed to the faith's highest leaders to seek direction from God on the issue of women joining the priesthood.
A three-man panel held a church disciplinary hearing for her on Sunday in Virginia, where she lived until recently, and their verdict was delivered by email.
"Our determination is that you be excommunicated for conduct contrary to the laws and order of the Church," Kelly's former ecclesiastical leader in Virginia, Bishop Mark Harrison, said in the message.
"These conditions almost always last at least one year," it said, adding that if she showed "true repentance" and gave up teachings and actions that "undermine the Church, its leaders, and the doctrine of the priesthood," she could be readmitted.
Kelly, a former Washington human rights attorney, said the decision forced her out of her community and congregation.
"Today is a tragic day for my family and me as we process the many ways this will impact us, both in this life and in the eternities," she said in a statement.
Kelly is about to move overseas and did not attend the hearing, sometimes called a church court. Instead she wrote a letter defending herself and asking to keep her membership.
She has said she continues to believe in Mormon leaders and has suffered no crisis of faith, but rather has sincere questions about policies that bar women from the priesthood.
The Ordain Women group say they are steadfast in their faith but want a more significant role in the life of the Utah-based church that claims more than 15 million adherents worldwide.
Men ordained to the lay priesthood can perform religious rituals, including baptisms, confirmations or blessings. Women may only hold leadership roles in auxiliary organizations.
"Feminists might go underground for a generation as we've seen in the past, but their questions aren't going to go away," said Mary Ellen Robertson, who runs the Sunstone Symposium, a forum on Mormon culture and scholarship.
The church has accused some members of "actively teaching and publicly attempting to change doctrine" due to their personal beliefs, and it says Mormon leaders have a duty to defend the church's fundamental principles.
Kelly's parents Jim and Donna have also suffered for publicly supporting her activism, being removed from volunteer jobs in their Provo, Utah congregation and banned from entering Mormon temples.
Jim Kelly, a former bishop who has participated in disciplinary hearings, said the family was reeling but that the ruling would not undermine his daughter's faith.
"The people who took this action ... have control over a building," he said in an interview. "They do not have control over her relationship with the Savior. There are no doors that they can control for that."