The news came just days after her coach had dismissed speculation about her quitting the sport.
Luo, who turned 23 on Friday, won the 100m breaststroke gold medal at the Athens Olympics and four breaststroke golds at the 2001 and 2003 world championships, but has been struggling with form and fitness over the last couple of years.
"Her heart is no longer able to withstand athletic sports," China Youth Daily quoted an unnamed "medical expert" as saying.
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"It is life-threatening if Luo plays world-class games such as the Olympics under this condition, but fortunately her daily life will not be affected."
After being given two months off last July for "physical problems" and "mental stress", Luo returned to winning ways at Asian Games trials.
But she missed the trip to Doha after fainting during training last November and was diagnosed with either exhaustion or low blood pressure.
She was dropped from the squad for March's world championships after a reportedly unsuccessful heart surgery.
"It means we have lost our best hope for gold medals at the 2008 Olympics," China's head swimming coach Zhang Yadong said.
"No one else in the current squad can reach Luo's standing on the world stage...the Beijing Games has become an ever more arduous task for us."
Zhang said last week that he was "not even thinking about" the possibility of Luo's retirement.
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