By Agence France-Presse
Tsang was jailed last year after being found guilty of failing to disclose his plans to lease a luxury flat from a major investor in a broadcaster, which was later granted a licence from the government while he was leader.
The 73-year-old, who held the leadership post of chief executive for seven years from 2005, is the most senior city official ever to be convicted in a criminal trial and the highest-ranking one to be put behind bars.
His trial came at a time when residents were losing faith in Hong Kong's leaders after a string of corruption cases fuelled suspicions over links between public officials and business figures.
Tsang was released on bail last year after two months in prison, pending the appeal.
The Court of Appeal sent him back to prison Friday, but shortly after he was led out of the courtroom by security guards, Tsang was taken away in an ambulance.
Local media reported that he had "felt unwell" and was wearing an oxygen mask.
The Court of Appeal judgement said Friday that: "It defies belief that someone with the applicant's long experience and background in government service could have overlooked the need to make a declaration of interest in these circumstances."
It added that Tsang's misconduct was "particularly serious, given his pre-eminent position in the community and the harm his actions will have engendered among the people of Hong Kong in their confidence in the way the Government does its business".
However, the court reduced Tsang's sentence from 20 months to 12 months, saying the previous judge's starting point for sentencing was too high.
Speaking outside court after the judgement was delivered and before Tsang was taken to hospital, his wife Selina said she was "disappointed and heartbroken".
"After discussing with the lawyers later, we will decide the next move as soon as possible," she told reporters.
Prosecutors during Tsang's trial characterised his conduct as an abuse of power to further his own personal interests.
In 2012, he apologised over separate allegations that he had accepted inappropriate gifts from business friends in the form of trips on luxury yachts and private jets.
His former deputy Rafael Hui was jailed for seven-and-a-half years in 2014 after being found guilty of taking bribes from Hong Kong property tycoon Thomas Kwok.