There have been international calls for Ms Suu Kyi's release
Burmese pro-democracy leader Aung San Suu Kyi has been sentenced to 18 months of house arrest, after a court found her guilty of violating security laws.
Ms Suu Kyi, a 64-year-old Nobel peace laureate, was on trial for allowing a US national into her lakeside home after he swam there.
Critics of Burma's military regime say the verdict is designed to prevent her from taking part in elections in 2010.
Ms Suu Kyi has spent nearly 14 of the past 20 years in detention.
Her American visitor, John Yettaw, was jailed for seven years including four years of hard labour.
Ms Suu Kyi was taken straight back to her home after the end of the trial, officials said.
Kate McGeown, BBC News website
The fact that the Burmese generals have decided to give Aung San Suu Kyi less than the maximum sentence shows they are willing to bow, at least to some extent, to the will of the international community.
But at the same time they still have what they really wanted - Aung San Suu Kyi will now be safely out of the way as they prepare for next year's elections.
She had always denied the charge but said she expected to be convicted.
UK Prime Minister Gordon Brown said he was "saddened and angry" by the verdict and described the trial as a "sham".
In a strongly-worded statement, Mr Brown said it was "a purely political sentence".
A statement from the office of Nicolas Sarkozy said the French president was calling on the European Union to impose new sanctions on Burma.
The EU presidency said it would impose "additional targeted measures against those responsible for the verdict".
US Secretary of State Hillary Clinton said Aung San Suu Kyi should not have been convicted, and she also called for the release of American citizen John Yettaw.
"We are concerned about the harsh sentence imposed on him, especially in light of his medical condition," she told reporters.
Mr Yettaw is believed to have epilepsy, diabetes and post-traumatic stress disorder, and has been treated at a Rangoon hospital.
Myint Myint Aye, of Ms Suu Kyi's National League for Democracy (NLD) party - the country's main opposition, said the party did not accept the verdict, adding: "We demand her immediate unconditional release and we will keep on pressing."
Journalists had unexpectedly been allowed to enter the court in Rangoon's Insein prison shortly before the sentence was announced.
The courtroom was initially told that Ms Suu Kyi was sentenced to three years in prison with hard labour.
But after a five-minute recess, Burma's home minister entered the courtroom and read out a special order from the country's military ruler Than Shwe that reduced the sentence to 18 months and said it could be served under house arrest.
Than Shwe said he reduced the sentence to "maintain peace and tranquillity" and because Ms Suu Kyi was the daughter of Aung San, a national hero who helped to win Burma's independence from Britain.
Ms Suu Kyi looked alert but tired during the 90-minute court appearance. She stood as the verdict was read out and then thanked foreign diplomats for attending.
"I hope we can all work for peace and prosperity of the country," she said quietly to diplomats seated nearby. She then was led out of the courtroom.
There was tight security around the prison, with security forces sealing off the area.
The trial has brought international condemnation, and many analysts say the main reason it was held was to give Burma's military government an excuse to keep Ms Suu Kyi out of next year's planned multi-party elections.
Her previous period of house arrest expired on 27 May, and this new term will mean she is still in detention during the polls, which are expected to happen in about May 2010.
The NLD won the last elections in 1990 but was never allowed to take power.
Mr Yettaw, 54, swam to Ms Suu Kyi's lakeside house in Rangoon uninvited and stayed there for two nights in May.
Hundreds of police were deployed at Insein prison for the end of the trial
As a result, Ms Suu Kyi was accused of breaching the terms of her house arrest and faced up to five years in prison.
Ms Suu Kyi's two female house companions were also arrested with her. At the trial they also received the commuted sentence of 18 months house arrest.
Mr Yettaw, of Falcon, Missouri, was sentenced to three years in prison for breaching Ms Suu Kyi's house arrest, three years with hard labour for an immigration offence and another one-year term with hard labour for swimming in a restricted zone.
It was not clear if the prison terms would be served concurrently.
Reports say he was discharged from hospital on Monday night after a week of treatment for epileptic seizures.
But according to the editor of the BBC's Burmese Service, Tin Htar Swe, the regime has no real reason to keep him so his sentence may well be commuted at a later date.