KIROV, Russia (Reuters) - Russian opposition leader Alexei Navalny was sentenced to five years in jail for theft on Thursday, an unexpectedly tough punishment which supporters said proved President Vladimir Putin was a dictator ruling by repression.
Navalny, an anti-corruption campaigner who led the biggest protests against Putin since he took power in 2000, hugged his wife Yulia and his mother, shook his father's hand and then passed them his watch before being led away in handcuffs.
"Shame! Disgrace!" protesters chanted outside the court in Kirov, 900 km (550 miles) northeast of Moscow. Some supporters wept and others expressed shock and anger.
State prosecutors had asked the court to jail Navalny for six years on charges of organizing a scheme to steal at least 16 million roubles ($494,000) from a timber firm when he was advising the Kirov regional governor in 2009.
But even a five-year sentence means he will not be able to run in the next presidential election in 2018 or for Moscow mayor in September as he had planned. Some political analysts had expected the court to hand down a suspended sentence, to keep Navalny out of prison but rule out any political challenge.
The United States and European Union voiced concern over the conviction, saying it raised questions about the rule of law and Russia's treatment of Putin's opponents. The White House called it part of a "disturbing trend aimed at suppressing dissent".
Russian shares fell on concerns that the ruling may provoke social unrest, after a case that has led to comparisons with the political "show trials" under Soviet leader Josef Stalin.
Thousands of Russians protested in Moscow and St Petersburg late into the evening and police detained dozens in both cities, but there were no major clashes.
In a last message from court, Navalny, 37, referred to Putin as a "toad" who abused Russia's vast oil revenues to stay in power, and urged his supporters to press on with his campaign.
"Okay, don't miss me. More important - don't be idle. The toad will not get off the oil pipeline on its own," he wrote on Twitter.
At least 3,000 gathered near the Kremlin in Moscow under a heavy police presence, intermittently blocking main streets and shouting "Shame!" and "Putin is a thief!"
Police plunged into the crowd to pluck out people holding Navalny portraits. A police official said about 50 were detained, but activists said the number detained had reached 169 as smaller groups continued to protest past midnight.
At least 1,000 people protested in St Petersburg, where police said about 40 were detained, and smaller rallies were held in other cities.
Yet public support for Navalny is limited, especially outside big cities, and Putin remains popular with many Russians.
Independent pollster Levada had put Navalny on about 8 percent support in the Moscow mayoral election, while it said Putin's job approval rating stood at 63 percent in June.
Judge Sergei Blinov read the verdict rapidly and without emotion in the packed Kirov courtroom, hardly looking up as he took about three and a half hours to explain his conclusions.
"The court, having examined the case, has established that Navalny organized a crime and ... the theft of property on a particularly large scale," he said.
Pyotr Ofitserov, Navalny's co-defendant, was convicted as an accomplice and sentenced to four years in prison.
Navalny, a powerful orator who has accused the authorities of being "swindlers and thieves", stood in silence with a puzzled expression as he listened to the verdict. He has 10 days to appeal, and his lawyer, Vadim Kobzev, said he would do so.
In an unexpected twist, prosecutors later lodged a complaint against the ruling under which Navalny was taken into custody, saying he should remain free, with travel restrictions, until a ruling on his appeal. A hearing on the issue was set for Friday.
The head of his campaign staff, Leonid Volkov, said Navalny had told him he would withdraw from the Moscow race if he was jailed, and that Navalny would make a statement about this on Friday. "There is no sense in taking part in it," Volkov said.
Navalny had said the charge against him was politically motivated and that the verdict would be dictated by Putin.
He denied guilt and pointed out that an initial investigation, over accusations that he had pressured a state forestry company to agree to a disadvantageous deal with a middleman firm, had been closed for lack of evidence.
Navalny is the most prominent opposition leader to be prosecuted in Russia since Soviet times.
Since Putin returned to the presidency after four years as prime minister, women from the punk band Pussy Riot have been jailed for a protest against him in Russia's main cathedral, and 12 opposition activists have gone on trial over violence that erupted at a protest on the eve of his inauguration in May 2012.
Another protest leader, Sergei Udaltsov, is under house arrest in what the opposition says is a crackdown on dissent.
The Kremlin denies that Putin uses the courts for political ends, and the judge rejected Navalny's claim of political motivation. Putin's spokesman, Dmitry Peskov, did not immediately answer calls after the sentence was pronounced.
Opposition politician Boris Nemtsov, who attended the hearing, said he was shocked. "With today's ruling, Putin has told the whole world he is a dictator who sends his political opponents to prison," Nemtsov told Reuters.
Former finance minister Alexei Kudrin, a longtime Putin ally, said the verdict would hurt business activity and the investment climate in Russia, where corruption and a lack of property rights dim the allure of potentially big profits.
William Browder, a Briton who was once one of Russia's biggest foreign equity investors but fell foul of the authorities, referred to the start of Stalin's show trials by saying: "This is like 1937 all over again."
Additional reporting by Lidia Kelly, Maria Tsvetkova and Alexei Anishchuk in Moscow, Liza Dobkina in St Petersburg; Writing by Steve Gutterman and Timothy Heritage; Editing by Andrew Roche and Michael Roddy