Police have clashed with thousands of protesters as the opposition leader has been jailed.
She denies misusing international funds donated to a charitable children’s trust.
Begum Khaleda Zia became the country’s first female head of government in 1991 after leading the Bangladesh Nationalist Party (BNP) to victory in Bangladesh’s first democratic election in 20 years.
She returned to the post of prime minister in 2001, stepping down in October 2006 ahead of a general election.
Khaleda Zia is the widow of former Bangladeshi President Ziaur Rahman.
Her political career has been marred by corruption allegations and a long-standing political rivalry with Awami League leader and the current prime minister, Sheikh Hasina.
The two women have alternated from government to opposition for most of the past two decades.
The 72-year-old’s jail sentence may mean she is barred from parliamentary polls due later this year.
The case is one of dozens pending against Khaleda Zia, a long-time rival of PM Sheikh Hasina.
The charges against her had already led to her boycotting elections in 2014, which triggered widespread protests at the time.
For today’s verdict there was heightened security across the capital and other cities. Many stores and schools were shut, reports said.
According to Khaleda Zia’s Bangladesh Nationalist Party (BNP), hundreds of its supporters were arrested in the run-up to the verdict.
Khaleda Zia has described the charges against her as politically motivated.
As she went into court, the former prime minister told weeping relatives: “I will be back. Do not worry and be strong”, according to the Daily Star.
The verdict was read out in a court in Dhaka after police used tear gas to disperse thousands of her supporters.
According to local reports, several police officers were injured in the violence.
Khaleda Zia was led away to jail minutes after the verdict, bdnews24 reported.
Her son Tarique Rahman was given 10 years in jail in absentia as he is in London. The same jail term was handed down to four of her aides.
Khaleda Zia’s trial centered around $252,000 intended for an orphanage trust set up when she was prime minister. She was found guilty of embezzling the funds.
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