Prime Minister Enrico Letta called for calm "for the good of the country" amid fears the landmark ruling could raise tensions in the governing coalition which includes Berlusconi's People of Freedom party.

In an emotional video message broadcast on Italian television, Berlusconi said the verdict was "based on nothing at all" and vowed to fight on in politics.

Sitting in front of the Italian and European flags in his Rome residence, a visibly shaken Berlusconi listed his political and business achievements.

"In exchange for all my commitment, I have been rewarded with accusations," he said, adding: "This is a country that does not know how to be just".

"We must continue our battle for freedom," he said. He repeatedly said before the ruling that it should have no effect on the government and even diehard supporters have been cautious after earlier threatening mass resignations from parliament

Berlusconi's lawyers said they were looking into a possible further appeal to the European Court of Human Rights in the latest twist to a 20-year political career dogged by legal woes and sex scandals.

The court upheld a sentence for tax fraud of four years in prison of which three are covered by an amnesty, even though Berlusconi is certain to be granted community service or house arrest instead.

It also ordered an appeals court to weigh a possible temporary ban from holding public office for Berlusconi, which would eject him from the Senate.

The conditions of Berlusconi's sentence are still to be determined but experts say he may need permission from prosecutors to carry out political activities and could be excluded from running again as a candidate.

In any case the Senate will have to vote to lift Berlusconi's immunity before the sentence can be implemented -- a process that could take months.

A roar went up from a small group of anti-Berlusconi campaigners gathered outside the courtroom in central Rome as news of the ruling filtered through.

One elated activist uncorked a bottle of champagne and held up an image showing the scandal-tainted magnate behind bars reading: "This is how we want Berlusconi".

At a rally of Berlusconi supporters near his luxury residence in another part of Rome, activists lowered their flags and ceased chants of "Silvio, Silvio!"

The road in front of the palace, where Berlusconi huddled with family members, lawyers and political allies, was blocked off by dozens of police officers.

"This is day of great pain," Gianfranco Rotondi, a lawmaker from Berlusconi's party, told reporters who crowded around the tycoon's home.

The current government was installed following a two-month deadlock between Berlusconi's centre-right coalition and a leftist grouping led by the Democratic Party after close-run elections in February.

"Berlusconi is dead," said Beppe Grillo, leader of the anti-establishment Five Star Movement party.

"His conviction is like the fall of the Berlin Wall in 1989," the firebrand leader wrote in a blog.

Guglielmo Epifani, leader of the centre-left Democratic Party, said the sentence should be "respected, executed and implemented".