Yadav already is serving a five-year prison sentence on a conviction in a related case for fraudulently withdrawing 378 million rupees ($5.8 million) from the Bihar state government treasury for fictitious medicines and fodder for cattle.
The sentence was delivered today via video conferencing after being postponed three times this week.
The arguments on quantum of sentence had been going on since Thursday when those of five convicts were heard and another five, including Lalu Prasad, was heard on Friday.
The Supreme Court order is part of its attempt to clean up India's electoral system by making it more hard for politicians with criminal cases to contest elections.
The RJD supremo is lodged in the Hotwar Central Jail in Ranchi since December 23.More news: Roy Moore accuser's house fire under investigation for arson
The case pertains to an alleged withdrawal of Rs. 89.27 lakh from Deoghar district treasury between 1994 and 1996.
On the other hand, BJP and its ally JD (U) said that no one is above the law, after the RJD said its leader has fallen prey to a "conspiracy" by Bihar Chief Minister Nitish Kumar and the saffron party. In Bihar, it's raining scams yet no investigation is made on those.
Lalu Prasad is also facing trial in three more cases relating to the fodder scam, also known as "chara ghotala".
The court also said if he fails to furnish the fine, his jail term would extend by six months.
Furthermore, in the wake of court's ruling and pronouncement of sentence against Lalu Prasad Yadav senior members of the RJD are expected to meet today to discuss the party's strategy and the "emerging political situation".
A total of 62 cases were filed by the CBI and majority of them were transferred Ranchi after Jharkhand was carved out from Bihar in 2000.