Ching Fu Shipbuilding Co won the contract in 2014 to build six minesweepers for Tw$34.9 billion ($1.13 billion), but the firm later accused of illegally raising massive loans.

Company chairman Chen Ching-nan conspired to falsify documents and invoices with offshore paper companies to obtain loans from local banks, the Kaohsiung district court found.

"Ching Fu was not financially sound and was incapable of fulfilling the huge contract," the court said in a statement.

Chen was also hit with a fine of a fine of Tw$105 million, while his wife was sentenced to 18 months in prison for her role in the case. They can appeal the ruling.

His son has been put on a wanted list after he fled Taiwan.

Taipei relies on its main unofficial ally Washington as its biggest arms supplier, but President Tsai Ing-wen has been pushing to strengthen its own military equipment technology and manufacturing capabilities since she came to power in 2016.

China has ratched up military, economic and diplomatic pressure on Taiwan since Tsai became president because she hails from a party that refuses to recognise the idea that the island is part of "one China".

Last week, two countries in the strategically important Pacific switched their official recognition from Taipei to Beijing, leaving the self-ruling, democratic island with only 15 diplomatic allies.

Taiwan in 2017 launched its first ever home-grown submarine project after years spent waiting for US models.

The Ching Fu scandal hurt the image of the navy and caused up to Tw$13.1 billion of losses for the lending banks, authorities have said.

Prosecutors had found no wrongdoing by the defence ministry, which dissolved the contract with the shipbuilder in late 2017 amid an investigation.