Raul Baduel, a former general and Chavez confidant who led an operation to rescue the president from a bungled coup attempt in 2002, became a prominent opponent of the socialist government after quitting the defence ministry in 2007.
He had been held in a military jail since his arrest in April 2009 on charges of illicit enrichment.
The official state news agency said $3.9 million under Baduel’s control had gone missing and that a military court had sentenced him to seven years and 11 months in jail.
“The ruling states that the diversion of resources was verified through interviews with military units,” it reported.
“The ruling also said it was established via testimony, payment receipts and bank documents that some relatives of the former defence minister benefited from the diverted funds.”
Baduel split with Chavez in 2007 after the president proposed a constitutional overhaul that would have expanded his power. The former general accused Chavez of weakening democracy in South America’s biggest oil exporter.
The political atmosphere is heating up in the OPEC member nation ahead of legislative elections due in September that are being seen as a barometer for a 2012 presidential vote.
The opposition accuses Chavez of taking the country down an increasingly dictatorial route, while his supporters say the president is the victim of a US-led campaign of vilification for reversing decades of exploitation of the poor with policies like free clinics and schools.