Minecraft server freezes and boots all players with the following message: "minecraft internal exception: io.netty.handler.timeout.ReadTimeoutException"

Locally installed and hosted server has been getting chunk errors since the 1.7.2 update and has reached a point where no one is able to stay connected. Javew.exe process spikes to 50%+ CPU and 1GB+ physical memory and boots all connected players with the error message "minecraft internal exception: io.netty.handler.timeout.ReadTimeoutException"

Server logs-

[20:07:34] [Server thread/INFO]: Starting minecraft server version 1.7.2
[20:07:34] [Server console handler/ERROR]: Exception handling console input
java.io.IOException: The handle is invalid
at java.io.FileInputStream.readBytes(Native Method) ~[?:1.7.0_40]
at java.io.FileInputStream.read(Unknown Source) ~[?:1.7.0_40]
at java.io.BufferedInputStream.read1(Unknown Source) ~[?:1.7.0_40]
at java.io.BufferedInputStream.read(Unknown Source) ~[?:1.7.0_40]
at sun.nio.cs.StreamDecoder.readBytes(Unknown Source) ~[?:1.7.0_40]
at sun.nio.cs.StreamDecoder.implRead(Unknown Source) ~[?:1.7.0_40]
at sun.nio.cs.StreamDecoder.read(Unknown Source) ~[?:1.7.0_40]
at java.io.InputStreamReader.read(Unknown Source) ~[?:1.7.0_40]
at java.io.BufferedReader.fill(Unknown Source) ~[?:1.7.0_40]
at java.io.BufferedReader.readLine(Unknown Source) ~[?:1.7.0_40]
at java.io.BufferedReader.readLine(Unknown Source) ~[?:1.7.0_40]
at ll.run(SourceFile:78) [minecraft_server.1.7.2.exe:?]

On startup and then spams;

[20:09:18] [Server thread/ERROR]: Wrong location! vw['item.item.rottenFlesh'/2672
[20:09:18] [Server thread/ERROR]: Wrong location! vw['item.item.rottenFlesh'/2673

Example log attached.

Edit: Updated to Java 7 Update 45, issue persists