Berlusconi has the right to appeal the ruling two more times before the sentence becomes definitive and will not be jailed unless the final appeal is upheld. Prosecutors had asked for a jail sentence of three years and eight months.

The court also ordered damages provisionally set at 10 million euros ($12.96 million) to be paid by Berlusconi and his co-defendants to tax authorities.

The ruling comes two days after Berlusconi, 76, confirmed he would not run in next year's elections as the leader of his centre-right People of Freedom (PDL) party.

A separate trial over accusations that Berlusconi paid for sex with an underaged prostitute is currently being heard in Milan. He denies all charges against him.

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 U.S. groups for 470 million euros between 1994 and 1999.

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."

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.

Shares in Mediaset, Italy's biggest private broadcaster, fell as much as 3 percent after the ruling. ($1 = 0.7716 euros)