The sentence on Lee Aldhouse was reduced from life imprisonment because he pleaded guilty to stabbing to death 23-year-old Dashawn Longfellow in 2010.
The victim was in Thailand after sustaining a combat injury in Afghanistan.
Aldhouse, known in Phuket by his ring name "The Pitbull", fled to his home country after the incident and become the first British suspect to be extradited to Thailand under a century-old treaty.
"The court originally handed him a life sentence but because he confessed it was reduced to 25 years," his lawyer Kampon Siriwatunyoo told AFP after the ruling in Phuket.
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"He prefers to be in a Thai jail rather than serve his sentence in Britain because he said there is a royal pardon once or twice a year here," Kampon added.
Under Thai law Aldhouse could have faced the death penalty.
He is expected to be transferred to another prison on the mainland, according to Phuket provincial prison commander Rapin Nichanon.
"As he received 25 years he must be moved to a high-security prison," Rapin said.
Aldhouse fled to Britain after Longfellow was stabbed but was arrested upon arrival and detained for almost two years while he fought extradition.
He initially denied murder but later changed his plea.
The victim's relatives criticised the sentence as too lenient.
"Lee took the life of our hero and because of his actions our family will never be able to see the light in my brother's eyes or the smile on his face," Longfellow's sister Marquis wrote on a special Facebook page dedicated to the murdered ex-Marine.
"Don't get me wrong, 25 years is better than nothing but it damn sure is not long enough for a man who intentionally took the life of an American hero for no other reason than a bruised ego.