He will not be jailed, however, and can serve his sentence at home with an electronic bracelet, the court ruled.
Mr Sarkozy denies any wrongdoing and is expected to appeal against the ruling.
It is his second one-year prison term. In March, he became the first former president of France to receive a custodial sentence – for corruption and influence peddling – but remains free pending an appeal of that sentence.
In the latest trial, Mr Sarkozy was accused with 13 other defendants over their role in the so-called “Bygmalion” scandal.
On Thursday, the court in Paris ruled that though the former president may not have known the full details of the fraud, he must have seen that limits were breached and did nothing about it.
It is the latest legal challenge for Mr Sarkozy, who served a five-year term as president from 2007.
In 2012, he lost his re-election bid to socialist François Hollande.