The conviction means Ms Khaleda, the longtime rival of the Prime Minister, Sheikh Hasina, will be barred from running in the next national elections scheduled for December.
She was convicted of embezzling 248,154 taka (£178,000) in donations meant for an orphanage trust established when she was prime minister from 2001-2006.
The judge also sentenced her son, Tarique Rahman, and four others to 10 years in prison for their involvement in the crime.
Police used tear gas to disperse thousands of opposition activists who took to the streets of the capital, Dhaka, ahead of the verdict.
Protesters swarmed the roads, defying a police ban on rallies and TV footage showed images of motorcycles set on fire.
"Security has been ramped up in the capital and elsewhere in the country to thwart any untoward incidents," the Dhaka Police Commissioner, Asaduzzaman Mia, told reporters outside the court.
Earlier on Thursday, the normally clogged streets of Dhaka were almost bare, after authorities cut off bus and ferry services into the city and thousands of riot police spread out in anticipation of unrest.
Ms Khaleda and her Bangladesh Nationalist Party (BNP) say the charges are part of a plot to keep the leader and her family out of politics.
Party leaders said more than 3,500 supporters were detained over the past few days.
Ms Khaleda faced a maximum sentence of life in prison, but the judge said he took into consideration the 72-year-old's health and her "social status," an apparent reference to her time as prime minister.
She faces more than 30 other charges, ranging from corruption to sedition.
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