Former Italian prime minister Silvio Berlusconiwas on Friday sentenced to four years in jail, quickly reduced to one - for tax fraud with Italy's lengthy appeals process likely to ensure he never sees the inside of a prison cell. 

Scandal-hit Berlusconi, 76, condemned the sentence as "intolerable judicial harassment", a week after he denied hosting raunchy parties and having sex with an underage prostitute in a separate case. 

The four-year term was immediately cut to one under an amnesty law approved in 2006 by the then centre-left government to reduce the overcrowding of Italian prisons. 

Berlusconi was also banned from holding public office for five years by the Milan court. 

He is, however, considered certain to stave off any imprisonment or ban on his political activities by appealing through higher courts. The verdict, connected to his Mediaset empire, came two days after he announced his retirement from politics. 

His lawyer branded the verdict as "absolutely unbelievable". 

"This is an incredible and intolerable political sentence. This is no doubt a political verdict, as political as all trials fabricated against me," Berlusconi said on his Italia 1 television channel. 

During the trial, which began six years ago but was repeatedly suspended, Berlusconi was accused of artificially inflating the price of distribution rights bought by his companies and of creating foreign slush funds to avoid paying taxes in Italy. 

The court also sentenced the media tycoon and 10 co-defendants to pay 10 million euros ($13 million) to Italian tax authorities for losses in what they called "large-scale fraud". 

The tax scam helped to create secret overseas accounts and reduce profits to pay fewer taxes in Italy. 

The prosecution had asked for a prison sentence of three years and eight months for Berlusconi, the longest-serving prime minister of post-war Italy. 

Prosecutor Fabio De Pasquale said in June that Mediaset costs for the films had been inflated by $368 million from 1994 to 1998, and by 40 million euros from 2001 to 2003. 

Berlusconi was at "the top of the chain of command in the sector of television rights until 1998", De Pasquale said at the time. 

He had asked for a prison sentence of three years and four months for Mediaset president Fedele Confalonieri. 

But Berlusconi's close aide in his business dealings was acquitted on Friday. 

Mediaset shares tumbled 3.11 per cent to 1.338 euros at Friday's close. 

In court a week ago, Berlusconi was accused of paying for sex with then 17-year-old Moroccan exotic dancerKarima El-Mahroug. 

He is also charged with abusing his position as prime minister by telling police to release her when she was arrested for petty theft in May 2010.