Officers on patrol spotted a party in Lenton, Nottingham, on Tuesday night but were told everyone had left.
But inside they found more than 30 people hiding and, when challenged, organisers complained they should be having the "time of their lives".
Nottingham Trent University said the third-year students had been suspended.
Mixing of households indoors has been banned since Nottingham went into tier two restrictions on 14 October.
On Tuesday, Prime Minister Boris Johnson said talks over moving Nottinghamshire into tier three were "ongoing" but the city council's leader said no discussions had started.
Nottingham had the highest level of infection in England for nine days running, with many of the cases centring on areas with a high student population.
Police said after being told the party in Kimbolton Avenue had ended, officers found people hiding in the kitchen, upstairs bedrooms and basement.
Assistant Chief Constable Kate Meynell said the people at the property had shown a "blatant disregard for the safety of those around them".
"This needs to stop. The claims that police presented as a barrier to the students' fun are astounding," she said.
"How many fines do we have to give before the message is understood? We do not take pleasure in handing out fines and would much rather be in a situation where students could enjoy themselves but the reality is that if people do not follow the Covid-19 restrictions, more people will die."
A spokesperson for Nottingham Trent University said: "Any student who is found to have breached our disciplinary regulations can face a range of sanctions, up to and including expulsion."
Infection rate drops again
The coronavirus infection rate for Nottingham has dropped again compared to the same time a week earlier.
In the seven days up to 18 October there were 2,012 new cases, down from 3,085 in the previous weekly period.
The rate of infection per 100,000 people has also gone down from 926.7 in the week up to 11 October to 604.4.
For a third day, the city has the second highest rate in England, behind Knowsley in Merseyside.