Jones, 42, who is marriedwith two children, will be forced to surrender her seat, causing a by-election, if she loses an appeal against the verdict.
For Conservative leader, William Hague, it could present his toughest electoral challenge. It will be seen as a test of the Government's popularity with the voters of Middle England, but with Tony Blair holding an unassailable Commons majority, the by-election is one Mr Hague has to win.
Michael Ancram, the Conservative party chairman was playing down the Tories' chances, but if they cannot win a mid-term by-election in what was traditional Tory territory the pressure on Mr Hague will increase.
Newark, a county town on the Nottinghamshire-Lincolnshire border, had been held for the Conservatives by Richard Alexander for 18 years until he was defeated by Jones at the last election on a 10 per cent swing to Labour.
The seat was not even on Labour's list of key target seats and the Government will be defending a slender majority of 3,016, making Newark a prime target for the Conservatives.
A jury at Nottingham Crown Court took five hours to decide that Jones knowingly made a false return on her election expenses under the Representation of the People Act 1983. The maximum penalty she could have faced was a jail sentence of up to two years with an unlimited fine, but she was sentenced to 100 hours community service.
Des Whicher, 73, Jones's agent during the 1997 general election, was also found guilty and fined pounds 750.
The case is understood to be the first time in 140 years that a sitting MP has been found guilty of electoral malpractice.
Jones said outside the court that she would be launching an immediate appeal. "I am extremely disappointed and surprised about this result," she said. Whicher also said he would be appealing, adding: "I am devastated and I can't believe it. I intend to fight on - my conscience is clear."
Just weeks after the election, copies of her return, and other documents, were leaked to the defeated Liberal Democrat candidate Peter Harris. He contacted the media and the police, and the Nottinghamshire fraud squad launched an investigation.
Mr Harris came third in the 1997 and is not expected to fight the by- election.
The three-week trial was told that Jones and Whicher either omitted or under-declared significant amounts of expenditure on their official election expenses form. The prosecution said that despite claiming to have spent less than the legal limit of pounds 8,915 on the campaign, she had in fact spent twice the permitted amount. The expenses return that she and Whicher submitted to the returning officer Richard Dix declared they had spent almost pounds 400 less than the maximum.
A Labour Party spokesman said: "We are obviously disappointed at the verdict, particularly after the judge's summing up. But we accept the court's decision and will now prepare for the by-election."
t Newark result at the last election: F Jones (Lab) 23,496; R Alexander (C) 20,480; P Harris (Lib Dem) 5,960; G Creedy (Ref) 2,035. Lab maj: 3,016; swing 10.2 per cent from C to Lab.