The Intermediate People's Court in the central Chinese city of Wuhan, where East Star is based, announced the bankruptcy in a statement on Thursday, according to the newspaper.
The court also rejected a restructuring plan submitted by the carrier's parent East Star Group and investment firm ChinaEquity, which had promised to inject between 200-300 million yuan into East Star, the official Xinhua news agency said late on Thursday.
The court said the plan "was infeasible and failed to meet the conditions for a legal restructuring", arguing that ChinaEquity had failed to explain where it would get the money from, according to the agency.
East Star, which was established in 2005 and operated more than 20 regional routes in early 2008, was hit by cash flow problems in the second half of last year as travel demand slumped amid the economic crisis.
It was ordered to stop flights by the nation's aviation regulators in March this year because of a failure to pay plane rental fees, after it rebuffed a takeover offer from flag carrier Air China.
The country's small number of private airlines have been especially vulnerable to the economic downturn as their passenger base is relatively small and they do not have the same access to funding as state-owned competitors.