"The verdict proves no one is above the law", Law and Parliamentary Affairs Minister Anisul Haque said after the verdict that was announced amid tight security.
Ms Zia was led away to jail minutes after the verdict, bdnews24 reported.
She said the trial process of the former prime minister was transparent.
According to the reports, Judge Md Akhtaruzzaman of the Special Court-5 sentenced the two-time former Prime Minister to the five-year imprisonment.
Khaleda's lawyers will seek bail besides quashing of the lower court order, said a political analyst. Zia's chief counsel Khandakar Mahbub Hossain termed the verdict "dictated" and said, "It failed to reflect the truth".
As police clashed with thousands of Zia's supporters in Dhaka and other parts of the country, her lawyers said she would promptly appeal the verdict. The Jail authorities have already renovated the cell. "This is the result of the political vengeance of the current prime minister. Considering her age and status she will be provided all facilities she deserved". The same jail term was handed down to four of her aides.
Police set up checkpoints at main entrances to Dhaka to prevent thousands of rural supporters of BNP and its allies from marching to the capital. Unfortunately, she has used the courts for this goal.
But it has also gently urged Hasina to allow "visible minimum participation" by the Opposition BNP, with whom she has been at daggers drawn for several years.
Five people were injured when police fired rubber bullets at protesters in the northeastern city of Sylhet, witnesses said.
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. "No way we will accept this verdict", BNP Secretary General Fakhrul Islam Alamgir told Agence France-Presse. The punishment for a conviction is life in prison.
Mr Rahman is believed to have sought asylum in the United Kingdom to evade justice, as he is also being tried on several charges including the August 21, 2004 grenade attack on a rally of the then Opposition Awami League when 23 people were killed and prime minister Hasina narrowly escaped the attack.
At a news conference in Dhaka on February 7, Begum Zia accused the government of false allegations to "harass me and my family", but called on her supporters to be peaceful.