"The disciplinary committee took note that the player, together with the crowd, shouted a Croatian salute that was used during World War II by the fascist 'Ustase' movement," world football's ruling body said in a statement on Monday.
"As a consequence the committee agreed that this salute was discriminatory and offended the dignity of a group of persons concerning, inter alia, race, religion or origin.
"After taking into account all of the circumstances of the case, and particularly given the gravity of the incident, the committee decided to suspend the player for 10 official matches," said FIFA.
"The first matches ... have to be served during the final competition of the 2014 FIFA World Cup."
At the end of Croatia's 2-0 win on November 19, Australia-born Simunic took the microphone at the Maksimir Stadium in Zagreb, turned to the stands and shouted 'Za dom' (for the Homeland), to which the audience replied 'Spremni' (Ready).
The call-and-response salute is widely associated with Croatia's Nazi-allied Ustasha regime which ruled in 1941-45 and brutally persecuted Jews, Serbs, Gypsies and anti-fascist Croats.
Simunic, who plays his club football for Dinamo Zagreb, said in a statement last month that he meant nothing wrong.
"As a Croatian who was born and grew up outside my homeland, I associate home with love, warmth and positive struggle - everything we showed on the pitch to win our place in the World Cup," said the 35-year-old.
Simunic was also fined 30,000 Swiss francs (£20,700) and "banned from entering the confines of the stadiums with regard to the 10 matches for which he is suspended".
The FIFA suspension appears particularly severe, especially in view of the relatively light punishments that have been dished out to national teams and club sides for racist behaviour.