The Seoul Central District Court recognized DAS, an auto-parts company set up under his elder brother's name, as actually being owned by the former president, ending more than a decade of controversy.
The 76-year-old served as president from 2008-2013 and has been held at a detention center in Seoul since his arrest in March.
He is the fourth former South Korean president to be imprisoned.
Lee's successor, Park Geun-hye, should stay in prison for a total of 33 years for her role in a massive corruption scandal that revealed deep-rooted collusive ties between businessmen and politicians.
The Seoul Central District court found Lee only responsible for about $21.7 million in embezzled funds, citing a lack of evidence from the prosecution for the full $35 million.
He boycotted Friday's session after a criminal court in Seoul allowed live TV coverage.
Prosecutors had demanded 20 years in jail, a 15 billion won fine and the forfeiture of 11.1 billion won against Lee, the report said.
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Samsung allegedly paid six billion won (USD 5.6 million) in legal fees to a U.S. law firm on Lee's behalf.
The court said he told DAS officials to create slush funds and are responsible for a range of irregularities involving the company.
"Such actions from the president, the head of state and the leader of the executive branch, can be severely condemned as it does not stop at violating the fairness and integrity of the presidential office, but undermines trust in the entire public office", said judge Chung Kye-sun.
Moon won last year's election on a promise to root out the nexus of corruption between the political and business elites, and proposed revising the constitution to, among other things, reduce the power of the president over the judiciary and the president's power to pass special pardons.
Lee previously described the case against him as "revenge" after the liberal president Moon Jae-in, now in office, was elected.
Lee denied all the charges in the lead-up to the verdict, calling the testimony of DAS employees "a plot".
Both Chun and Roh received presidential pardons after serving about two years. The court convicted him of seven charges.