Thompson was told about the ruling and four-stroke penalty as she walked to the 13th tee in the final round, immediately handing playing partner Suzann Pettersen and Australia’s Minjee Lee a two-stroke advantage over the rest of the field with just six holes to play.
TV footage revealed Thompson had not replaced her ball in the same place on the 17th green on Saturday after marking it prior to a near tap-in putt.
With just a foot remaining between her and the hole, Thompson leaned over, placed a coin behind her ball and adjusted its position to line up a marking on the ball with her intended putting line.
When she replaced the ball, she inadvertently moved it to the side and slow motion pictures clearly showed the infraction had been committed and a two-stroke penalty incurred.
However, because she signed her scorecard after the round without adding the penalty, a further two strokes was assessed when she was informed of the decision on the course.
The 22-year-old was clearly distressed when told of the decision by rules officials and hit her tee shot at the 13th through tears.
Social media immediately reacted, former World Number One Tiger Woods summing up the feelings of many with his Tweet.
Viewers at home should not be officials wearing stripes. Let's go @Lexi, win this thing anyway.— Tiger Woods (@TigerWoods) April 3, 2017
Thompson went on to birdie the 13th hole to rejoin the lead as Pettersen and Lee both made bogeys at the same time.
Thompson managed to regroup after the incident to force a playoff with So Yeon Ryu and was defeated by the South Korean at the first extra hole.
Want video tips delivered straight to your inbox? Subscribe to iseekgolf.com newsletters.