Sharif, a three-time premier who was removed by the country's Supreme Court last year, was arrested and is set to be taken to a jail in the eastern city of Lahore, his hometown and political stronghold.

"He is in custody and will start his term from today," said Nawazish Ali Khan, a spokesman for the anti-graft agency.

The second charge from the leaked papers was dropped.

Judge Arshad Malik announced the decision on Monday after a tense trial lasting more than a year in the capital, Islamabad.

The decision said that Sharif could not prove the source of investment with which one of his sons had established a steel mill in Saudi Arabia in 2001, a year after former military ruler Pervez Musharraf sent the family into exile.

Sharif's government was overthrown by Musharraf in a coup in 1999, and his family was forced to leave the country by the military ruler.

Sharif was first arrested in July after his conviction on another charge, but the sentence was overturned by a higher court two months later.

Thousands of activists from Sharif's Pakistan Muslim League party clashed with riot police outside the courtroom ahead of the decision.

Sharif's party called the conviction unfortunate and part of a witch hunt against politicians in Pakistan, a country that was ruled by the military for almost half of its existence.

"It is unfortunate ... we will fight it with both political and legal means," said Shahid Khaqan Abbasi, another former premier and leader of Sharif's party.

The party said it would take to the streets to protest the conviction and file an appeal in the higher court.

Sharif, known as an advocate for civilian supremacy in a country marred by years of violence by Islamist militants and political upheavals, has rough relations with the military and the judiciary.

All three of his terms in power ended prematurely: Once through a direct military coup and covert army work on the other occasions.

Australian Associated Press