Gillian Gibbons, 54, was arrested on Sunday on blasphemy charges in Khartoum, the capital of Sudan, after her class of primary school pupils named a teddy bear Muhammad in September.
Islamic Sharia law is in force in some parts of Sudan, including the capital.
Although Gibbons said that the act was not intended in any way as an insult to the Prophet Muhammad, she was charged with insulting religion, inciting hatred and showing contempt for religious beliefs. She could have faced up to 40 lashes, six months in prison or a fine.
British Foreign Minister David Miliband said he was "extremely disappointed" that the charges had not been thrown out, adding that the incident had come about as a result of an "innocent misunderstanding by a dedicated teacher".
"Our priority now is to ensure Mrs Gibbons' welfare, and we will continue to provide consular assistance to her," he said.
The Sudanese ambassador, Omer Siddiq, was later summoned to the Foreign Office to explain the decision.
Gibbons is to be deported from Sudan after she has served her sentence.
Reactions to the court case have been mixed amongst Muslim groups.
"This matter is not worthy of arrest or detention and her continued detention will not help repair the misconceptions about Islam," the London-based Ramadhan Foundation said.
Inayat Bunglawala, spokesman for the Muslim Council of Britain, said Gibbons "should never have been arrested in the first place, let alone convicted of any crime".
"There was no crime, it was a wholly innocent and naive ... The worst you could say about her actions is that she was inadvertently naive. She should not be put in prison for that," he said.
However, hard-line Muslim clerics have rejected Britain's claims that the incident was the result of an "innocent misunderstanding."
"What has happened was not haphazard or carried out of ignorance, but rather a calculated action and another ring in the circles of plotting against Islam," the Sudanese Assembly of the Ulemas said in a statement.
"It is part of the campaign of the so called war against terrorism and the intense media campaign against Islam," the statement concluded.
The incident is the latest in a series of international clashes involving so called Western values and Islam. Last year, caricatures of the Prophet Muhammad in some European newspapers sparked riots in several Muslim countries and protests in Europe.
