He was also fined T$200 million ($6 million). Chen has said the charges were political, denied wrongdoing and will likely appeal against the verdict, which was not expected to affect Beijing's ties with current Taiwan President Ma Ying-jeou of the China-friendly Nationalist Party (KMT).
"The defendant Chen Shui-bian has been a lawyer, a legislator, he has enjoyed a good reputation and then served as our country's president," the court said in a statement.
"He should have been noble, but he served himself, he manipulated his family and those near him, and used his family to make money," it said.
Several hundred Chen supporters demonstrated near the court. Some threw plastic bottles and scuffled with police in protest after the verdict and sentence were announced.
Chen's wife, Wu Shu-chen, was convicted on seven counts of graft and also sentenced to life in jail. She was fined T$300 million. Chen's son and daughter-in-law were handed sentences ranging from 20-30 months for related crimes.
Embezzlement, bribes
Prosecutors had charged Chen with embezzling T$104 million ($3.185 million) from a special presidential office fund, accepting bribes of about $9 million related to a land procurement deal and taking another $2.73 million in kickbacks to help a contractor win its bid for a government project.
"During the investigative process and court proceedings of Chen's case, numerous actions have taken place that are, or border on, being illegal and unconstitutional," Chen's foundation said ahead of the verdict. "Similarly flagrant abuses of power have been exercised to pillory and try to make a scapegoat of former President Chen."
Taiwan has cleaned up much of its corruption over the past 20 years due to efforts to adopt international standards, business leaders say. An active opposition party and unrestricted media also help keep the central government in check.
"Most companies that do business here successfully have not bribed any officials," said John Eastwood, a partner with the Eiger Law firm in Taipei.
Taiwan scored a 39 last year on Berlin-based Transparency International's annual clean government survey, where 1 is the cleanest and 180 the worst. It led China and the Philippines but lags Japan, Singapore and Hong Kong.
While ruling from 2000-2008, Chen upset Beijing and the United States by advocating formal independence from China, which has claimed sovereignty over the self-ruled island since the end of the Chinese civil war in 1949.
China, a veto-wielding permanent member of the UN Security Council, claims Taiwan as its own under its "one China policy" and has vowed to bring the island under mainland rule, by force if necessary.
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