Panahi, known for his internationally acclaimed movies like The Circle, White Balloon and The Mirror on humanitarian struggles in the country, has been outspoken in his support of Iran's opposition movement, earning the wrath of the government.
The filmmaker was convicted of colluding in gathering and making propaganda against the regime, lawyer Farideh Gheyrat told the Iranian state news agency, ISNA, the Guardian reported.
"He is therefore sentenced to six years in prison and also he is banned for 20 years from making any films, writing any scripts, travelling abroad and also giving any interviews to the media including foreign and domestic news organisations," she said. Gheyrat said she would appeal against the conviction.
The 49-year-old filmmaker is one of the most respected names in international cinema. He started his career by making several films for television and later went on to work with cinema legend Abbas Kiarostami in Through the Olive Trees.
Panahi won the Camera d'Or at the Cannes film festival in 1995 for his debut feature The White Balloon, and the Golden Lion at Venice for his 2000 drama The Circle. His other films include Crimson Gold and Offside.
Because of his outspoken nature most of Panahi's films are banned at home despite earning high acclaim worldwide. The director was arrested in July 2009 for taking part in the mourning for protesters killed after the disputed presidential election. He was soon released but denied permission to leave the country.
In February 2010, he was again arrested with his family and colleagues. Prominent Hollywood figures like Martin Scorsese, Steven Spielberg, Francis Ford Coppola and Juliette Binoche condemned his arrest. The jury members left a chair empty to represent Panahi, who was barred from attending the Cannes film festival.
In an interview in September, Panahi had said: "When a filmmaker does not make films it is as if he is jailed. Even when he is freed from the small jail, he finds himself wandering in a larger jail."
Image: Jafar Panahi poses with his Silver Berlin Bear for his film Offside at the 56th Berlinale International Film Festival in Berlin, 2006.
Photograph: Arnd Wiegmann/Reuters