"The guilty verdict was read out to General Fonseka at the court martial a short while ago," the military source told AFP.
"The president as commander-in-chief must now ratify the decision."
Fonseka's hearing before the three-member tribunal began five months ago. He has the right to appeal the verdict to a civilian court.
"The court has ruled that he should be cashiered," the military source said.
"So he will be stripped of his rank and all the medals he had earned during his 40-year career."
A separate court martial is still hearing charges that he engaged in corrupt deals.
As the battlefield architect of the military victory over Tamil Tiger rebels in May last year, Fonseka had seemingly secured his legacy as the commander who crushed the 37-year insurgency for an independent Tamil homeland.
But it was his bid to translate that success into political power that was to prove his undoing as he took on his former ally, President Mahinda Rajapakse, at the ballot box in ele