By Roberto Landucci and Barry Moody
ROME (Reuters) - Italy's supreme court on Thursday upheld a jail sentence against Silvio Berlusconi for tax fraud in a devastating blow to the four-times prime minister that could throw the country's fragile coalition government into crisis.
The former cruise ship crooner is Italy's most colorful and scandal-prone figure but it was his first definitive conviction in up to 30 court cases on charges ranging from fraud and corruption to having sex with an underage prostitute.
After a three-day hearing, the five judges of the supreme court rejected Berlusconi's final appeal against a verdict handed down by two lower courts which sentenced the media mogul to four years in jail - commuted to one year under an amnesty.
But the top judges ordered a review by a Milan court of the second part of his sentence, a five-year ban from public office. This will enable him to remain a senator and leader of his center-right People of Freedom Party (PDL) for the moment.
In a sober video message after the verdict, Berlusconi proclaimed his total innocence and launched a bitter attack on magistrates he said had hounded him for 20 years and become an undemocratic rival power to the state.
Looking shaken, he vowed to press ahead in politics with the refoundation of his original political party, Forza Italia, through the mobilization of young people, and a reform of the justice system. But he acknowledged that he had "arrived almost at the end of my working life."
Berlusconi, Italy's longest serving premier, had previously said the government must not fall whatever the verdict but he made no mention of this in his video address.
The 76-year-old billionaire who has dominated politics for 20 years and been prime minister four times, was convicted for inflating the price paid for television rights by his Mediaset media empire and skimming off part of the money to create slush funds.
Because of his age he is likely to serve the sentence either through community service or under house arrest.
He accuses leftist magistrates of relentlessly trying to remove him from politics since he stormed onto the scene in 1994 after a corruption scandal wiped out the old order.
The verdict could not only mark the twilight of his long career but destabilize the three-month-old government of Prime Minister Enrico Letta and potentially send tremors across the euro zone.
The bloc's third-largest economy is ruled by a fractious coalition of Letta's center-left Democratic Party (PD) and Berlusconi's PDL.
President Giorgio Napolitano, architect of Letta's coalition after a two month hiatus following inconclusive elections in February, quickly issued a statement urging calm and national cohesion. He called for trust and respect for the judiciary.
Letta echoed his comments, calling for calm and saying the nation's interests must come before those of individuals.
DANGER OF POLITICAL TURMOIL
PDL hawks had called for a mass walkout of its ministers and public protests including blocking motorways if he was convicted.
His supporters demonstrated outside his central Rome home before the verdict, disrupting traffic.
A greater threat to the government could come from the faction-ridden PD, many of whose members are already unhappy with ruling in coalition with Berlusconi's party and could rebel following his first definitive conviction.
A close Berlusconi ally, former Justice Minister Francesco Nitto Palma, said after meeting the former premier that the verdict "will not affect the Letta government, which was created to serve the country."
But comments from other politicians, on the left and right, were less harmonious.
Luca d'Alessandro, head of the PDL parliamentary justice committee said: "This country used to be famous as the cradle of law. Today it has become its tomb, run by a corporation of grave diggers in gowns who have carried out the perfect crime."
The leader of Letta's PD, Guglielmo Epifani said, "The sentence has to be respected and carried out."
Beppe Grillo, leader of the populist 5-Star Movement that stunned mainstream politicians by taking a quarter of the vote in the February election, hailed the sentence on his blog: "The verdict is like the fall of the Berlin Wall in 1989."
Investors have hitherto shown little concern, with the main barometer of market confidence, the spread between Italian 10 year bond yields and their safer German counterparts, at 270 basis points, well below levels seen during earlier crises.
But markets were closed before the verdict came out.
Napolitano and Letta are adamant that Italy cannot afford more instability as it struggles to climb out of its worst postwar recession.
There has been speculation that Berlusconi's oldest daughter, Marina, 46 and chairwoman of his Fininvest holding company, could become the PDL's figurehead if he was convicted.
Both major parties may be reluctant to precipitate an election that might produce an even more chaotic result than the February vote in which Grillo surged to prominence.
But the verdict could add to inertia which has prevented Letta's fractious government from passing urgently needed economic reforms.
The supreme court decision is not Berlusconi's only legal headache. He is also appealing in a lower court against a seven-year jail sentence imposed in June for abuse of office and paying for sex with Moroccan-born nightclub dancer Karima El Mahroug, alias "Ruby the Heartstealer", when she was underage.
(Editing by Robin Pomeroy)