(Adds ActionAid reaction, paragraphs 6-7)

By Tsegaye Tadesse

ADDIS ABABA, Dec 24 (Reuters) - An Ethiopian court on Monday convicted two rights activists, held since a disputed 2005 election, of inciting an uprising against the government in a ruling that drew condemnation from rights groups.

The two are the last defendants out of 131 originally charged after demonstrators took to the street to protest polls they said were rigged. A parliamentary inquiry said 199 civilians and police were killed and 30,000 people arrested.

The government denies election fraud.

"The court finds Netsanet Demisse and Daniel Bekele guilty of inciting uprising and distributing anti-government flyers," Judge Adil Ahmed told the court.

They are due to be sentenced on Wednesday and face up to 10 years in jail.

Daniel worked for ActionAid, while Netsanet worked closely with the global anti-poverty campaigner through his Organisation for Social Justice in Ethiopia.

Both were involved in deploying observers at polling stations in and around the capital Addis Ababa.

ActionAid expressed "shock and dismay" at the verdict.

"This is a terrible ... disappointment to me," ActionAid chief executive Ramesh Singh said in a statement. "We will continue to stand by our two brave colleagues ... we remain hopeful that they will ultimately establish their innocence."

Amnesty International condemned the decision saying the two men were "prisoners of conscience arrested solely for their peaceful human rights work".

"Their trial was not fair, and the charges against them were no more than the criminalization of free speech," said Erwin van der Borght, director of Amnesty's Africa Programme in a statement.

"The trial has already had a chilling effect on civil society activism."

The two were acquitted of a more serious "outrage against the constitution" charge.

The larger trial was criticised by rights groups and donors who saw it as an attempt to dismantle the opposition which won its largest ever showing in the 2005 parliamentary vote, regarded as Ethiopia's most open election.

But a post-poll crackdown to quash unrest raised concerns about Prime Minister Meles Zenawi's democratic credentials.

In August, the U.S. House of Representatives passed a bill linking aid to Ethiopia, a major ally in Washington's war on terror, to democratic reforms.

Pressure on the government eased somewhat with the release of 38 opposition Coalition of Unity and Democracy (CUD) members in July, including CUD Chairman Hailu Shawel.

They were pardoned and freed days after being given jail terms for trying to overthrow the government.

A month later, 31 others held since the disputed polls were also freed. In both cases, the government said the defendants had signed a letter admitting their guilt.

But the two activists had refused to sign a formal apology, preferring the fight their case in court.

The prosecution said on Monday it would push for the stiffest punishment because the defendants were educated and knew what they were doing.

In a statement following the court verdict, Netsanet said: "Whatever we did during the election, we did with the good and honest intention of respecting the constitution of our country." (Writing by Tim Cocks; Editing by Katie Nguyen and Mary Gabriel)

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