The 27-year-old US amputee track runner tested positive to nandrolone, the IPC said.
Frasure loses his silver medal in the F44 200 metres category, but would keep his silver medal in the 100m race as his drug test in that event was negative, the IPC said in a statement.
He will be expelled from the Paralympics and will not be allowed to compete in all sports for the next four years, including the 2004 Paralympics.
It takes the number of positive drug tests at the Sydney Paralympics to 10. The other nine positive tests were from powerlifters.
IOC Vice President Jacques Rogge said more athletes were using nandrolone because it was now available in pill form which made it harder to detect than previously when it was available only in injectible form.
Rogge, a doctor and vice chairman of the IOC medical commission, said during the Olympics that tests showing such a high level could only indicate an injection or intake of nandrolone pills.
"As a result of the injection you could be tested positive for months and even in certain cases for a year after the injection, which was of course a downside for the cheaters," he added.