• Burma court imposes three-year sentence, cut to 18 months • Military junta says she can serve term in Rangoon home • Ruling condemned as political move ahead of elections

Aung San Suu Kyi will spend the next year and a half under guard at her home in Rangoon after a court today found her guilty of breaking the terms of her house arrest. The sentence means she will play no part in elections the military junta has promised to hold early next year.

The 64-year-old learned her fate in a few minutes of courtroom drama, witnessed by journalists and diplomats from the same countries that have been calling for her immediate and unconditional release.

Although her sentence falls some way short of the maximum five years available to the court, news that the Nobel peace laureate had again been denied her freedom drew immediate condemnation from around the world.

UN Secretary-General Ban Ki-moon, who visited Burma last month but failed to meet with Suu Kyi, "strongly deplores" the court action and urged the country's ruling generals "to immediately and unconditionally release" Suu Kyi, his office said in a statement.

Gordon Brown said he was "saddened and angry" at the conviction.

The prime minister said the sentence was "further proof that the military regime in Burma was determined to act with total disregard for accepted standards of the rule of law and in defiance of international opinion. This is a purely political sentence designed to prevent her from taking part in the regime's planned elections next year."

He said as long as the opposition leader and other detained opponents were prevented from taking part in the political process, the elections "will have no credibility or legitimacy".

"The facade of her prosecution is made more monstrous because its real objective is to sever her bond with the people for whom she is a beacon of hope and resistance," Brown said.

Shortly after the court sentenced her to three years of hard labour, the home minister walked into the courtroom and announced that the junta leader, Senior General Than Shwe, had halved the sentence and would allow Aung San Suu Kyi to serve it in her Rangoon home.

Than Shwe said he had reduced the sentence to "maintain peace and tranquility" and because Aung San Suu Kyi was the daughter of Aung San, a revered hero who won Burma's independence from Britain in 1948.

A diplomatic source who witnessed the verdict said Aung San Suu Kyi looked "unfazed" after the first sentence was read out. "It didn't seem to catch her by surprise at all," he told the Guardian on condition of anonymity. "She was unfazed by it. She did not look like someone who had just been sentenced to three years' hard labour."

The announcement minutes later that her sentence had been commuted to 18 months' house arrest was "a choreographed attempt to get us to witness the leniency, clemency and humanity of the general [Than Shwe]", the source said. "But if the aim was to keep her out of circulation for the elections, then that is what they achieved."

Before being led from the courtroom, Aung San Suu Kyi walked over to the diplomats and thanked them for attending her trial. "I look forward to working together for the future prosperity of my country," she was quoted as saying.

Aung San Suu Kyi had been accused of harbouring John Yettaw, an American who swam uninvited to her lakeside compound in early May.

Yettaw, a 53-year-old from Missouri described as an eccentric by his family, spent two nights at Aung San Suu Kyi's home in early May. He had visited her, he said, to warn her of a dream in which he had foreseen her assassination.

The opposition leader, who has spent 14 of the last 20 years in detention, pleaded with Yettaw to leave but relented after he said he was too ill to swim back across the lake.

Yettaw was given a seven-year jail sentence, including four years of hard labour, after the court found him guilty of abetting the violation of the house arrest order and two other offences.

Local reports said Yettaw's sentence consisted of three years in prison for breaching Aung San Suu Kyi's house arrest, three years with hard labour for violating immigration laws, and another year with hard labour for swimming in a restricted zone. It was not immediately clear whether he would serve the terms concurrently.

The junta's order reduced the sentences of two women who lived with Aung San Suu Kyi to 18 months' house arrest each.

Observers had expected a guilty verdict at the end of a trial that drew condemnation not only from the US, Britain and the UN, but from some of Burma's neighbours, which have traditionally been reluctant to interfere in the country's politics.

Malaysia's foreign minister, Anifah Aman, called for an "urgent meeting" of members of the Association of South-east Asian Nations (Asean).

"I think there is a need for Asean foreign ministers to have an urgent meeting to discuss this issue, which is of grave concern," he told Agence France-Presse in the Malaysian capital, Kuala Lumpur. "With this sentence there is no possibility for Aung San Suu Kyi to participate in the general election next year, which should be free, fair and inclusive."

Opponents of the Burmese junta, which has ruled with an iron fist since 1962, say Yettaw's stunt has been exploited to keep Aung San Suu Kyi out of the public eye during the elections.

As leader of the National League for Democracy (NLD) party, she represents the most serious threat to the generals' hold on power. The NLD won an overwhelming victory in the last elections in 1990, but the junta refused to accept the result. Almost two decades later, more than 2,000 opponents of the junta remain in Burmese prisons.

There were no immediate reports of unrest outside Insein prison, where the defendants have been held since the trial began, despite speculation that a guilty verdict might spark protests by NLD members.

After the court's ruling was postponed at the end of last month, there were fears Aung San Suu Kyi would be forced to wait again when Yettaw was taken to hospital last week after suffering epileptic convulsions. He is also thought to suffer from diabetes and a heart complaint.

The decision to allow several journalists and diplomats to witness the verdict came as a surprise. It was only the third time outside observers had been permitted to attend the trial since it began on 18 May.