The case threatened to put the anti-migrant League and its leader Matteo Salvini on a collision course with coalition partner the Five Star Movement (M5S), which has taken a tough stance against corruption.
The court in Genoa on Thursday sentenced infrastructure and transport undersecretary Edoardo Rixi to three years and five months in prison, one month more than the prosecutor had demanded.
“I have already handed my resignation to Salvini,” Italian media quoted Rixi as saying.
Deputy Prime Minister Salvini said that he had accepted the resignation “solely to protect him [Rixi] and the activity of the government from senseless attacks and scandals”.
The court also ordered €50,000 to be seized from Rixi, who will appeal.
The court heard that Rixi and 19 others accused at the Liguria regional council had submitted private expenses including for amusement park visits, lottery scratch cards, oysters, chocolates, flowers and other items between 2010 and 2012.
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The councillors, who came from several different political parties, were also found to have claimed multiple times for the same receipt. In one instance, League councillors submitted 15 receipts from the same cafe on the same day.
The case echoes that of fellow League infrastructure and transport undersecretary and Salvini confidante Armando Siri, who was sacked earlier this month amid graft allegations.
Prime Minister Giuseppe Conte sacked Siri despite Salvini's protests that he had not accepted a €30,000 bribe — or the promise of it — from a businessman for promoting the interests of renewable energy companies. Prosecutors also suspected businessman Siri of being in league with a Sicilian who has links to a Mafia boss.