Judges sentenced Claude Gueant, once one of France's most influential figures, to two years in prison with one suspended, toughening an earlier sentence of two years suspended.
However under French law pertaining to sentences of less than two years, the 72-year-old is unlikely to have to go to prison.
Gueant was Sarkozy's right-hand man for a decade and served as interior minister in 2011 and 2012.
The court also upheld a 75,000-euro (USD 80,400) fine and confirmed a ban on him holding public office for five years.
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The case relates to payments made by Gaudin to Gueant between 2002 and 2004, when Gueant was Sarkozy's chief of staff in the interior ministry.
Gaudin handed over 10,000 euros a month to Gueant from an expense account for police investigations that was secretly used to top up salaries of interior ministry staff.
A total of 210,000 euros was handed out, with Gueant pocketing around half.
Using discretionary accounts to pay undeclared bonuses to officials was a common practice in France but was banned in 2001.