Fitzek had installed his “kingdom” on the site of a former hospital in the eastern city of Wittenberg in 2012, and crowned himself sovereign.
He had also illegally set up a bank that he operated between 2009 and 2013.
Around 600 people banked with him, entrusting him with deposits totalling around €1.7 million ($1.8 million).
But prosecutors said Fitzek embezzled €1.3 million of the deposits for his own use.
Sentencing Fitzek to three years and eight months in prison, presiding judge Ursula Mertens noted that no proper accounting exists of the sums handled by Fitzek.
“Over the years, you've muddled along and taken a lot of money,” said Mertens.
“Your investors now have nothing because nothing was hedged,” she added.
Dressed in a blue shirt with a logo of his “kingdom”, Fitzek interrupted the sentencing, shouting “joke”, “scandal” and “lies”.
Some 20 of his “subjects” who were following the proceedings also made catcalls. One man was eventually escorted out of the courtroom.
Fitzek argued that he had spent the missing funds for the good of his community.
But Mertens retorted: “You, Mr Fitzek, have done nothing for the common good. You have used the money on yourself.”
Fitzek has been in and out of court, including for driving without a licence. He argued that his kingdom had issued the permit.
He has also been convicted of illegally running a health insurance service.
On his website koenigreichdeutschland.org, Fitzek says he has also issued his own currency since 2007 called Engelgeld (Angel Money).
Germany's domestic intelligence service view Fitzek as part of the far-right “Reichsbürger”, or “Citizens of the Reich” movement, which rejects the legitimacy of the German republic.
Once dismissed simply as crackpots, the Reichsbürger movement is being seen as an increasing threat after several members opened fire on police in recent months.
Domestic intelligence service chief Hans-Georg Maassen has said the “Reichsbürger scene” of activists and sympathizers was now thought to number about 10,000, including 500-600 right-wing extremists and 700 with gun licences.
Fitzek denies being part of the movement.