The first court martial by a bench of three top military officials held in Colombo on Friday convicted Fonseka of conspiring to topple the government while in uniform.
Officials from the President Secretariat said Rajapaksa, who is the Commander-in-Chief of military, has authorized the conviction.
According to military sources, the verdict will not imprison Fonseka but will remove him from his rank and medals.
Fonseka, 59, is credited for the Army's victory over the Liberation Tigers of Tamil Eelam (LTTE) rebels ending the three- decade campaign to set up a separate Tamil homeland.
He, who led the Sri Lanka Army from December 2005 until November 2009, is Sri Lanka's first four star general.
Fonseka was found guilty of having discussions with the Opposition parliamentarians while in uniform to get him a party slot for the January Presidential polls.
This was the first of two courts martial which Fonseka was subject to since his arrest on Feb. 8.
The sittings began on March 16 and Fonseka tried to halt Court Martial proceedings but failed.
After ending the war against the Tamil Tiger rebels in May 2009, Fonseka, the experienced soldier was promoted to the Chief of Defense Staff but he resigned from the post in November claiming he was sidelined.
He unsuccessfully challenged Rajapaksa at the presidential election in January 2010 and was arrested for trying to topple the government during his tenure as the Army Chief. Fonseka had challenged the result in court.
Fonseka contested the parliamentary polls while behind bars and entered the legislature from the Democratic National Alliance led by him.
The first court martial, which was appointed by Rajapaksa, commenced its sittings under the provisions of the Army Act in March.
Fonseka is also facing the second court martial over allegations of irregularities in military purchases. He is accused for supporting his son-in-law to purchase military equipment during his tenure as the Army Chief.
Fonseka, who is in military detention, said the court ruling was unacceptable as it came from low ranking military officials.
"It is a humorous joke," he said.
Earlier, Fonseka charged Defense Secretary Gotabaya Rajapaksa for ordering to execute some LTTE leaders who came to surrender during the final days of the battle.
The DNA Parliamentarian Anura Kumara Dissanayake said Rakapaksas harassing Fonseka as he challenged the president and the DNA would not accept the court ruling as it was one sided.
"This is not the way to treat a war hero. We can not justify this ruling as the hearing was held during court vacation. Fonseka' s lawyers were on holiday,"he said.
Rienzie Arsecularatne, Fonseka's lawyer claimed that the case was taken up during his absence though he informed the court martial that he would not be present as it was court vacations.
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