Dame Shirley and her former deputy, David Weeks, were cleared by the Court of Appeal in May 1999 of misconduct for selling off council homes to potential Tory voters in marginal wards to boost the party's election prospects.
But five law lords unanimously allowed an appeal by district auditor John Magill and ordered the Tesco heiress and Mr Weeks to make good the council's losses.
Lord Bingham said the affair was a 'deliberate, blatant and dishonest misuse of public power' surrounded by 'pretence, obfuscation and prevarication'.
Lord Scott added, though 'no one took a bribe . . . there are other forms of corruption, often less easily detectable and therefore more insidious'.
'Gerrymandering - the manipulation of constituency boundaries for party political advantage - is a clear form of political corruption,' he said.
If unchecked this engenders cynicism of politicians and damages democracy, he added.
Westminster City Council's director of legal services Colin Wilson said: 'We will now take steps to seek recovery of the sum the House of Lords has said is due.'
He added if the sum due is not received in full within the 14-day period allowed, legal steps will be taken.
Labour MP Peter Bradley, who served on Westminster City Council between 1986-96 and was one of the 13 who referred the original complaint to the district auditor, said justice had caught up with the council's former leader.
'It is an indictment not just of Shirley Porter and her tinpot dictatorship but of the Conservative government, which protected and supported it, and regarded Westminster as its flagship authority,' he said.
He accused Tory ministers of 'turning a blind eye on Porter's excesses' and called for Conservative Party leader Iain Duncan Smith to condemn her actions.
'Will he apologise to the thousands
of ordinary working-class former Westminster residents forced out of their communities by Porter's social engineering?' he asked.