Tsang, 72, held the leadership post of chief executive for seven years from 2005 and is the most senior city official ever to be convicted in a criminal trial.
The case comes at a time when residents are losing faith in Hong Kong's leaders, as a string of prominent corruption cases fuel public suspicions over links between authorities and business figures.
Tsang was found guilty of failing to disclose his plans to lease a luxury flat from a major investor in a broadcaster, which was later granted a licence from the government while he was leader.
Tsang was also acquitted on another misconduct charge which alleged he had failed to declare that an architect he proposed for a government award had been employed as an interior designer on the flat.
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Wearing a dark-red bow tie, Tsang remained solemn as the verdict was delivered to a packed courtroom and was visibly upset as he left the building holding his wife's hand.
His bail was extended until Monday, when he will be sentenced.
But prosecutors characterised his conduct as an abuse of power to further his own personal interests.
One pro-democracy lawmaker, who is a former investigator for the city's anti-graft agency, said the case illustrated the problems in Hong Kong's political system.
The city's leader is chosen by a 1,200-strong committee made up of representatives of special interest groups, including business figures.
"The political system of Hong Kong sides with the vested interest groups," Lam Cheuk-ting told reporters outside the High Court.
"All of the chief executives have to maintain a very close connection with those groups," he said.
The jury of eight women and one man took two days to arrive at their decision.
In 2012 Tsang apologised in connection with separate allegations that he accepted inappropriate gifts from business friends in the form of trips on luxury yachts and private jets.
His former deputy Rafael Hui was jailed for seven-and-a-half years in 2014 after being found guilty of taking bribes from Hong Kong property tycoon Thomas Kwok.
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