Zia, 72, is a former ally turned arch-foe of Bangladesh's Prime Minister Sheikh Hasina.
Legal experts had earlier said Zia could be sentenced to life in prison if found guilty of embezzling 21 million takas (about USA $252,000) in foreign donations to an orphanage trust set up when she was last prime minister, from 2001 to 2006.
The court also sentenced Zia's eldest son and BNP's senior Vice-Chairman Tarique Rahman to 10 years in jail.
Bangladeshi police have clashed with thousands of protesters, as opposition leader Khaleda Zia was jailed for five years for corruption.
The Bangladesh government should publicly order the security forces to abide by worldwide standards on policing demonstrations, Human Rights Watch said.
She was immediately taken to a special jail in the old part of the city where she would have to remain until her lawyers file an appeal.
"This case was totally fabricated, the main intention of this case was to malign Khaleda Zia and bar her from participating in the next election", Mirza Fakrul Islam Alamgir, Secretary General of the BNP party, said. The charges against her had already led to her boycotting polls in 2014, which triggered widespread protests at the time.
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Washington, Feb 9 The US has urged Bangladesh to ensure "fair trial" for ex-prime minister Khaleda Zia who was sentenced to five years rigorous imprisonment for corruption.
TV footage showed police using teargas shells on Thursday to break up street protests, as hundreds of Zia's supporters descended on the streets chanting slogans to support her.
Legal experts said the verdict may jeopardise her career as she may be disqualified from contesting polls, including the general elections slated for December.
Speaking on condition of anonymity, political observers in Dhaka said if Zia is not allowed to contest, it would be hard for the BNP to convert the popular support into a win.
Both Prime Minister Sheikh Hasina and Khaleda Zia have dominated Bangladesh politics for over two decades and have a bitter and long standing rivalry, with both relatives to former national leaders of the country.
The prosecution has said the Zia Orphanage Trust and the Zia Charitable Trust, established in the name of her late husband and former President Ziaur Rahman, existed only on paper.
Home Minister Asaduzzaman Khan said the government chose to keep Khaleda in the old central jail considering her age and social status as she is a former prime minister.