Former Liverpool midfielder Xabi Alonso has been acquitted of tax fraud, a Madrid court announced on Tuesday.

The prosecutors had initially demanded him to face five years in jail before halving their request.

Alonso, a World Cup winner with Spain in 2010, was accused of using a company based on the Portuguese island of Madeira to avoid paying 2 million euros ($2.2 million) in taxes on his image rights to the Spanish authorities.

Prosecutors said the fraud took place between 2010 and 2012 when he was playing for Real Madrid.

The court added it was impossible to discuss a cover-up as the transfer of the rights had been 'formalised in the contract' signed in 2009 between Alonso and the Portuguese firm.

Alonso, who retired from playing in 2017 after a stint at Bayern Munich, is one of a string of high-profile footballers to face scrutiny by the Spanish tax authorities over the declaration of income from image rights.

Some have admitted fraud as part of a deal to avoid jail time, including Atletico Madrid striker Diego Costa and Barcelona's Gerard Pique, both of whom paid out after being convicted over the summer.

And earlier this year, the tax authorities caught up with Juventus attacker Cristiano Ronaldo and Tottenham coach Jose Mourinho, both over the management and declaration of image rights.