Dutt was convicted in 2006 of buying arms from bombers who attacked targets in Mumbai.
The judges said on Wednesday that Dutt has to return to prison within four weeks.
Dutt entered politics by campaigning for the regional Samajwadi Party during the 2009 general elections.
Trade analysts say Dutt's jail term will be a huge financial blow for the industry.
Mr. Dutt will have to surrender within four weeks to serve the sentence, the court said.
Film industry insiders said the time would not be enough for Dutt to complete all his projects.
Mr. Dutt, 53 years old, already has spent a cumulative 18 months in jail on related charges.
Calcutta resident and musician Neel Dutt told The Telegraph newspaper that he was happy with the campaign.
Ms Dutt even said those who incited violence on social media should be hunted down and punished.
An emotional Dutt told reporters that he would "abide by the court's decision" and not seek a pardon.
BBC: Bollywood actor Sanjay Dutt says he will 'return to prison'
Mr. Dutt served 18 months in jail before he was released on bail in 2007 pending an appeal.
Bollywood actor Sanjay Dutt has said he will return to prison for his conviction over the 1993 Mumbai blasts.
BBC: Bollywood actor Sanjay Dutt says he will 'return to prison'
Last month judges ordered Dutt to surrender by 18 April after reducing his sentence to five years from six.
Dutt was convicted in 2006 of buying weapons from bombers who attacked Mumbai.
BBC: Bollywood actor Sanjay Dutt says he will 'return to prison'
Many actors and politicians who had gathered outside Mr Dutt's house in Mumbai expressed their shock at his death.
Despite the long-drawn case and his stint in jail, Mr. Dutt's Bollywood career flourished over the past two decades.
Dutt was convicted in 2006 of buying firearms from bombers who attacked Mumbai.
The official told him the last celebrity to talk openly about cancer was the late film actress Nargis Dutt.
President APJ Abdul Kalam sent a message of condolence to Mr Dutt's family.
Dutt has already served about 18 months of a five-year jail term for illegally possessing a rifle and a pistol.
Supreme Court judges ordered Dutt to surrender in a month after he said work commitments meant he needed more time.
"I don't remember any phase in my life where there have been no problems, " Dutt once told interviewer Simi Garewal.
Dutt, one of Bollywood's most bankable stars, is hugely popular for his role as a loveable gangster in the Munnabhai movies.
Dutt, 53, had urged the court to allow him to finish work on a number of films before returning to prison.
Dutt, the most high-profile among the convicts, was originally charged with five offences, including criminal conspiracy and possession of illegal weapons.
Member of parliament and fellow Bollywood actor Govinda, who was considered close to Mr Dutt, said he had lost a mentor.
In addition to the four projects underway, two other movies that Mr. Dutt recently completed filming were being readied for release.
Two of Dutt's films are being readied for release, but several other projects are midway and are likely to be delayed.
India's Supreme Court has ruled that Bollywood actor Sanjay Dutt must return to prison for his connection with the 1993 Mumbai blasts.
"I don't remember of any phase in my life where there have been no problems, " Dutt told interviewer Simi Garewal last year.
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