The official Iranian newsagency said the case would now be returned to Tehran's justice department for a decision on when the sentence should be served.

Mr Karbaschi, an ally of Iran's moderate President Mohammad Khatami, was a key figure in the 1997 election campaign.

His trial on corruption charges last year was regarded as a focal point of the power struggle between Iran's conservatives and moderates.

It also provoked a series of street demonstrations by his supporters.

Charges denied

Mr Karbaschi, 45 was originally sentenced to five years in jail and a 20-year ban from holding executive office.

At an earlier appeal the sentence was reduced to two years in jail and a 10-year ban from executive office. He was also ordered to pay 1.6bn rials ($533,000) in fines and restitution.

He has always denied the charges, saying they were politically motivated.

Iran's justice department is now charged with the task of deciding when the popular former mayor should serve his sentence.

But BBC Middle East analyst Pam O'Toole says department officials will be aware that any move to imprison Mr Karbaschi could provoke further popular unrest.