The nine-member court ruled by five to four that Thaksin had broken conflict of interest laws by helping his wife to acquire land at below market rates. The case was the first in a string of corruption charges against the former prime minister.
Thaksin helped his wife's purchase lucrative real estate in the Thai capital from a state agency in 2003 - at less than a third of the market price.
Case 'politically motivated'
|Supporters of Thaksin demonstrated outside the Thai supreme court [AFP]
Thaksin said he had expected a custodial sentence but dismissed the case as being politically motivated.
"It was expected, it wasn't a surprise and there will be more [charges] to come," he told the Associated Press by telephone from his home near London.
"I'm a politician and after I was toppled by the coup it is normal that they [the court] will try every means to justify it," he said.
"They don't use the rule of the law as evidence, they follow the politics ... They try to use the court to manage politics. I think the British people and the world understand that isn't democracy."
He has denied reports he is now seeking political asylum in the UK.
Seksan Bangsombun, chief prosecutor, said: "The prosecutors will soon make a copy of the court verdict and pass it on to Britain to quickly extradite him."
Ahead of Tuesday's verdict, police imposed tight security in and around the supreme court building to prevent possible clashes between Thaksin supporters and opponents.
For the past two months anti-government protesters have been camped at the prime minister's office compound in Bangkok, demanding that all vestiges of Thaksin's legacy be abolished.
Selina Downes, Al Jazeera's correspondent in Bangkok, noted the "judges themselves were clearly divided over this" as the verdict was not unanimous.
"The ruling is likely to further divide the country as Thaksin supporters will be angered by the verdict," she said.
"There were just a few hundred Thaksin supporters outisde the court to hear the verdict, but they are now threatening to mobilise tens of thousands more in the capital. The concern of the authorities now is to maintain security."
Thaksin, a telecoms tycoon, was the first Thai prime minister to complete his first term and be re-elected. However, in September 2006 he was ousted from power in a bloodless coup.
The generals who overthrew him claimed there was massive corruption and abuse of power under his rule and set up a corruption investigation unit, which has stacked up charges against Thaksin.
The supreme court has so far agreed to hear five cases against the former leader and there are five arrest warrants out against him.