Judge Alexey Vtyurin handed Navalny a five-year suspended prison sentence.
The conviction will likely bar Navalny, who heads the Progress Party, from standing for the presidency in 2018 as planned, since Russian law forbids convicted criminals running for political office.
Following the sentencing, Navalny tweeted in Russian: "We will continue our campaign and our fight for a better Russia despite this verdict dictated by the Kremlin. We do not recognize it and will overturn it."
Navalny also said via a livestream from the courtroom that the sentence was "a cable from the Kremlin that says they consider us too dangerous to let us run in the presidential election."
He pledged still to "represent the people that want to see Russia a normal, honest, corruption-free country."
Asked ahead of the verdict whether Navalny's potential absence from the 2018 presidential race would undermine its legitimacy, Kremlin spokesman Dmitry Peskov said, "We don't consider such fears appropriate."
Navalny was convicted in Kirov in 2013 of misappropriating $500,000 worth of state-owned timber
, in what he told CNN was a fabricated case.
But the retrial was ordered by Russia's Supreme Court in November, following a ruling in February 2016 by the European Court of Human Rights that Navalny and co-defendant Pyotr Ofitserov's right to a fair trial had been violated, according to Russia's RAPSI legal news agency.
The European Court of Human Rights last week ordered Russia to pay Navalny over 63,000 euros (nearly $68,000) in compensation, saying the Russian authorities had "repeatedly violated (his) human rights with arbitrary arrests, unlawful deprivations of liberty, and unfair trials."
In a blog post published ahead of the court hearing Wednesday, Navalny wrote that he expected anything but an acquittal from the court in Kirov.
"I don't know what the verdict will be, but I know for sure that it won't make political activism easier -- either for me, or for the rest of independent politicians and activists," he said. "One more act of intimidation won't work on everyone, but it works on someone, that's why they're doing it."
Navalny: 'We won't stop fighting corruption'
On Friday, addressing the court in Kirov, Navalny said he had gone through seven trials in the past four years.
"Naturally, I consider [the case against me] trumped up and I consider it political. Four years ago, standing here, I said: no matter what the verdict is, we won't stop our investigative work, we won't stop fighting corruption, we won't stop anything. And now, with a feeling of profound satisfaction, I'd like to say that I tried to live up to this promise."
A corruption-fighting lawyer, Navalny famously branded the ruling United Russia party -- founded by President Vladimir Putin -- "the party of crooks and thieves."
He has been a prominent organizer of mass street protests and has attacked corruption in Russian government, using his blog and social media. In 2013, he came second in Moscow's mayoral election, taking about 27% of the vote.
In August 2015, Navalny drew attention to a highly expensive watch worn by Peskov
at his wedding. Peskov denied corruption claims.
In December 2014, Navalny was found guilty of fraud in a politically charged trial
in which he and his brother Oleg were accused of embezzling 30 million rubles ($540,000) from a Russian subsidiary of French cosmetics company Yves Rocher. Alexey Navalny was given a suspended sentence, while his brother was sentenced to prison.