Sharp finished second to Arzhakova at last summer's European Championships in Helsinki, a performance that largely helped her earn selection onto Team GB for the London 2012 Olympics.
The 22-year-old clocked a personal best of 2:00.52 in Finland which was just over two seconds slower than the winning time posted by Arzhakova for gold.
However the Russian athletics federation confirmed an 'abnormal haemoglobin profile in her biological passport' of Arzhakova and she will now receive a two-year suspension.
They also announced that Arzhakova's results would be wiped from July 12, 2011 with Sharp taking bronze to her gold at the European Under-23 Championships shortly after that date as well.
Sharp, who reached the semi-finals of the 800m at the London 2012 Olympics, is currently in America and finished sixth at the Mt. SAC Relays earlier this month.
And she tweeted: "Just woken up to the news I will be upgraded to European champion from last year as a result of Arzhakova's ban.
"It makes me sick that I was denied the opportunity to do a lap of honour and stand on the top of the podium with my national anthem playing.
"And not to forget my European under-23 bronze from 2011 should now be silver. Thanks to everyone for your messages."