The 76-year-old billionaire, who was convicted three times during the 1990s in the first degree before being cleared by higher courts, has the right to appeal the ruling two more times before the sentence becomes definitive. He will not be jailed unless he loses the final appeal.
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The ruling comes two days after Berlusconi confirmed he would not run in next year's elections as the leader of his People of Freedom (PDL) party, ending almost 19 years as the dominant politician of the centre-right.
"It is a political conviction that I can define perfectly well as incredible and intolerable," Berlusconi said in a phone call to his Italia 1 private network.
He denied that there was any connection between this case and his decision to step aside and allow another center-right candidate to seek the premiership.
"My lawyers and I never thought that such a conviction would be possible," he said.
Milan judge Edoardo d'Avossa told a packed court that between 2000 and 2003, there had been "a very significant amount of tax evasion" and "an incredible mechanism of fraud" in place around the buying and selling of broadcast rights.
The court's written ruling said Berlusconi showed a "natural capacity for crime".
Berlusconi lawyers Piero Longo and Niccolo Ghedini said the ruling was "totally divorced from all judicial logic", adding that they hoped the "atmosphere" at the appeals courts would be different.
Berlusconi, one of Italy's richest men, became prime minister for a second time in 2001 after winning a landslide election victory. Even while he was prime minister, he remained in effective charge of Mediaset even though he had handed over control of day-to-day operations, the court said.
The four-time prime minister and other Mediaset executives stood accused of inflating the price paid for TV rights via offshore companies controlled by Berlusconi and skimming off part of the money to create illegal slush funds.
The investigation focused on television and cinema rights that Berlusconi's holding company Fininvest bought via offshore companies from Hollywood studios.
The court also ordered damages provisionally set at €10 million ($13 million) to be paid by Berlusconi and his co-defendants to tax authorities.
The flamboyant Berlusconi, who is still on trial in a separate prostitution case, resigned as prime minister a year ago as Italy faced a Greek-style debt crisis, handing the reins of government to economics professor Mario Monti.
Angelino Alfano, secretary of the PDL, said the ruling proved once again "judicial persecution" of the media magnate, while political rival Antonio Di Pietro, a former magistrate, hailed the decision, saying "the truth has been exposed."
Should the ruling be confirmed on appeal, Berlusconi would also be forbidden from holding public office for five years, and from being a company executive for three years.
"This is not a sentence, but an attempt at political homicide," Fabrizio Chicchito, the PDL's chief whip in the Chamber of Deputies, said referring to the ban from holding office.
Now that Berlusconi has said he will pull out of politics, he may be focusing more on his business empire, which includes Mediaset, AC Milan soccer club, and Internet bank Mediolanum.
Shares in Mediaset, Italy's biggest private broadcaster, fell as much as 3% after the ruling, and are down about 50% in the last year.
The broadcaster has been struggling against rivals like News Corp's broadcaster Sky Italia and a host of online media, while its core advertising revenues are feeling the pinch of the recession.
The court acquitted Mediaset chairman and long-term Berlusconi friend Fedele Confalonieri, for whom prosecutors had sought a sentence of three years and four months.
Berlusconi has owned AC Milan since 1986 and they have been European champions five times under his leadership. But the club's fortunes have dipped in the past couple of seasons amid cost cutting, prompting repeated rumors of its possible sale.
He also is still on trial in the separate "Rubygate" case in which he is accused of paying for sex with a teenaged nightclub dancer when she was under 18 and thus too young to be paid legally as a prostitute. He denies the charges.
The Associated Press contributed to this report