The tweet stemmed from a heated online argument with independent state MP Alex Greenwich and conveyed the meaning that he "engages in disgusting sexual activities", the court was told.
Mr Greenwich, who is gay and is a vocal advocate for LGBTQI issues, sued Mr Latham over the tweet sent in March 2023, days after the state election.
On Wednesday, the court ordered Mr Latham pay Mr Greenwich $100,000 in damages for non-economic loss and a further $40,000 in aggravated damages.
The former One Nation state leader's tweet described a sex act in explicit terms and was in response to a post quoting Mr Greenwich describing him as a "disgusting human being".
The independent Sydney MP also claimed he was defamed by comments made by Mr Latham to the Daily Telegraph in April 2023.
Justice David O'Callaghan ruled the comments made to the Daily Telegraph were not defamatory.
During a two-day trial in June, the judge heard the post unleashed a torrent of abuse on Mr Greenwich by homophobes while also lowering his standing with those sympathetic to him.
In his defence, Mr Latham claimed the post was his honest opinion and a response to provocation started by Mr Greenwich.
He has admitted the tweet was crass, offensive and vulgar but denied it defamed the independent MP or ruined his reputation.
The graphic post was widely criticised by across the political spectrum, including by One Nation federal leader Pauline Hanson.
The online sparring match between the two politicians followed violent protests outside a church in Sydney's southwest, where Mr Latham was giving a pre-election speech in March 2023.
About 250 mostly male counter-protesters violently attacked police and 15 LGBTQI protesters who had set themselves up outside the Belfield church.
The matter will return to court on September 25 for final orders.
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