The 45-year-old, who contributed to the local Sunday Times and ran a website, Outreachsl.com, was found guilty on three counts under the Prevention of Terrorism Act (PTA).
A court official said he was ordered to do 20 years of hard labour in jail.
He was found guilty on charges of receiving money from the rebel Liberation Tigers of Tamil Eelam (LTTE) to fund his website and causing racial hatred through his writings about Tamils affected by the conflict.
Obama mentioned Tissainayagam in his May 1 World Press Freedom day statement, describing him as an "emblematic example" of a journalist who was being persecuted for doing his work. Sri Lanka said Obama had been misinformed.
After the verdict, US State Department deputy spokesman Robert Wood said: "We were disappointed to learn of the verdict and the severity of the sentence.
"We continue to be concerned about the state of media freedom in Sri Lanka. Journalists remain under threat and consequently continue to practice self-censorship," he told AFP.
The court found that he had received money from the rebel Liberation Tigers of Tamil Eelam (LTTE) to fund his website.
Tissainayagam has been in custody since his arrest in March last year, despite appeals by both local and international media rights groups for his release.
A large number of journalists and media rights activists were in court when the surprise judgement was delivered after a nearly year-long trial.
Rights activist and lawyer Nimalka Fernando said the High Court ruling was a direct assault on freedom of expression in Sri Lanka and slammed the judicial system for stifling the media.
"This is a travesty of justice. This is a direct attack against freedom of expression. I may be hauled up for contempt for saying this but I don't mind because someone has to say it.
"I am appalled and saddened that Sri Lanka is closing its doors to international standards relating to freedom of expression," she said.
In Washington, Tissainayagam was honoured hours after the verdict as the first winner of the Peter Mackler Award for Courageous and Ethical Journalism, named after a 30-year veteran of Agence France-Presse who died last year.
"We are happy to reward J.S. Tissainayagam in 2009, a terrible year for Sri Lanka," said Jean-Francois Julliard, secretary-general of the Paris-based group Reporters Without Borders (RSF).
"This country needs journalists who are determined and concerned with finding the truth."
Tissainayagam has been in custody since his arrest in March 2008 despite appeals by local and international media rights groups for his release.
The head of the local Free Media Movement, Chulawansa Srilal, said they were stunned by the court ruling.
"He becomes the first journalist to be convicted and sentenced under the PTA," Srilal said. The PTA was introduced three decades ago during the early stages of the Tamil separatist campaign.
Tissainayagam's lawyers said they would appeal the conviction.
Defence authorities contended Tissainayagam received funding both directly and indirectly from the Tigers who were defeated by government forces in May.
The court accepted a confession from the journalist about his alleged involvement with the Tigers despite protests from his lawyers who questioned its authenticity.
The arrest of Tissainayagam came amid a climate of fear among Sri Lankan journalists, several of whom have been killed by unidentified groups.
A leading anti-establishment editor, Lasantha Wickrematunga, was shot dead near his office in January. Several others have escaped assassination.
Government figures show nine journalists have been killed and another 27 assaulted in the past three years while activists say over a dozen journalists have been killed.
The United Nations estimates between 80,000 and 100,000 people were killed in the decades-long conflict which ended after the military took control of all rebel-held territory and killed the group's leader Velupillai Prabhakaran.
The government still restricts media access to the regions where 300,000 war-displaced civilians are held in government-run camps.