The case was brought against Vadim Poegli, an editor at Moscow's popular daily Moskovsky Komsomolets, for publishing an article alleging he diverted army funds to buy Mercedes-Benz cars.
Judge Olga Govorova found Poegli guilty of deliberately insulting Grachev "in an indecent form" and sentenced him to a year working at a job specified by the government and giving up 30 percent of his salary.
At the court's discretion, he could possible serve the sentence working at his regular job at the newspaper.
Immediately after sentencing, Govorova ruled that Poegli was eligible for amnesty under parliamentary legislation introduced last spring.
"I do not need an amnesty. I am going to appeal in Moscow city court and to the Supreme Court if necessary," Poegli said after the trial. Under Russian law, Poegli has seven days to appeal.
Grachev, who has long blamed the media for the decline in the Russian Army's prestige, was not in court for the verdict. He was on an official visit to the United States to discuss peacemaking in Bosnia with U.S. Defense Secretary William Perry.
He had repeatedly refused to show up in court, saying he didn't want the trial turned into a circus.
Grachev finally appeared Wednesday after the judge threatened to send the police to bring him in and President Boris Yeltsin ordered him to go.
"You can call a man a thief only after a court of law has declared him a thief," Grachev told the court.
Poegli had stated during his testimony that he had not intended to insult Grachev in a personal way, maintaining that the label "Pasha Mercedes" that the paper had used in a headline was meant as a literary device.
However, Grachev objected strenuously to that and to the rest of the headline, which stated "a thief should be in prison, not acting as the defense minister."
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