The judge must impose life without parole when Malvo is formally sentenced March 10 for his part in the three-week reign of terror that left 10 people dead in and around the nation's capital in October 2002.
Malvo, wearing a blue sweater that made him look like a schoolboy, sat expressionless, his elbows on the defense table.
The jury took eight and a half hours over two days to decide his fate.
Stunned prosecutors could not hide their disappointment, reports CBS News Correspondent Jim Stewart.
"Of course, I'm not happy with the decision, but it's the American way," said Prosecutor Robert F. Horan Jr.
The trial was "an extremely difficult journey for everyone," jury foreman Jim Wolfcale said after the verdict. "This case was both mentally challenging and emotionally exhausting."
Wolfcale, reading from a statement as six other jurors stood by, added that the jury felt "heartfelt sympathy" for the victims' family and friends. The other jurors declined comment.
Wolfcale did not discuss why the jury decided on life, but prosecutors and defense lawyers agreed that Malvo's youth played a major role.
Horan Jr. said afterward that Malvo was "very lucky that he looks a lot younger than he is." And he suggested the timing of the deliberations just days before Christmas affected the jury.
"We used to have a theory when I was a very young prosecutor that whatever you do, don't try one on Christmas week," Horan said.
Defense attorney Craig Cooley said Malvo was relieved by the sentence, but "on the other hand he's 18, contemplating living the rest of his natural life in a penitentiary setting." He said the conviction will be appealed to the Virginia Supreme Court.
"This is a surprise, a shock, especially given the amount and nature of the evidence against him. Malvo ought to thank his attorneys for coming up with an insanity defense that was designed to educate jurors from the start of the trial about Malvo's background and his ill-fated relationship with the older sniper, John Muhammad," says CBSNews.com Legal Analyst Andrew Cohen.
Last month, Muhammad, 42, was found guilty of murder, and the jury recommended the death penalty. The judge in that case could still overrule the jury when he formally sentences Muhammad.
Both men could still be tried in other shootings in Virginia and elsewhere around the country and could get the death penalty.
Malvo was convicted of murder last week in the shooting of FBI analyst Linda Franklin, who was cut down by a single bullet to the head outside a Home Depot. Malvo was 17 at the time.
Cooley had argued that Malvo had been molded into a killer by the charismatic Muhammad. Cooley said Malvo came to regard the Muhammad as a father figure and was susceptible to older man's influence because of his own father's absences and because his mother beat him and moved him constantly.
"Children are not born evil. When they commit evil acts, you can almost always trace the acts to the evil that has been performed against them," Cooley said.
Cooley held a big rock, telling the jury that in ancient times the jury itself would stone the defendant. "The stone has no compassion. Once it has been cast, it has no ability to temper its impact. The commonwealth urges you to vote to kill, to stain your stone with the blood of this child," Cooley said.
Prosecutors had argued that death was the only appropriate sentence for Malvo.
Horan said that the killings were part of a scheme to extort $10 million from the government and that Malvo was the triggerman in most if not all the slayings. Horan rejected the notion that Malvo was less responsible for his crimes because he had come under the influence of Muhammad.
"They were an unholy team, as vicious as brutal and as uncaring as you can be," Horan said. "You can talk about John Muhammad all you want. Maybe it was his plan. Maybe it was his idea. But the evidence stamps this defendant as the shooter. ... He did it. Not John Muhammad."
Several relatives of the victims expressed disappointment that Malvo did not get the death penalty.
Marion Lewis, whose daughter, Lori Ann Lewis-Rivera, was shot and killed by a sniper bullet while cleaning her minivan at a Kensington, Md., gas station, said the jurors should be ashamed.
"I'm very disappointed in the American justice system," Lewis said. "Our society has now been sentenced to the responsibility of seeing to this man's health and welfare for the next 30 or 40 years, and that's unconscionable."
The defendant's mother, reached by phone in Malvo's native Jamaica, expressed her appreciation to the jury. "I knew he would get life because of the length of the trial," Una James said. "I thank God that they spared his life."
Malvo's father said the jury's recommendation was the lesser of two evils. "It's better than taking his life," Leslie Malvo said.
The jury consisted of eight women and four men, eight whites and four blacks. The foreman was a 41-year-old minister, and four others had occupations connected to education. Two were homemakers.
At the trial, the defense had presented an insanity defense, claiming Muhammad had so brainwashed Malvo with his notions of black nationalism, racism and revolutionary violence that the teenager was unable to tell right from wrong. Malvo and Muhammad are black.
Though the argument failed in the guilt-or-innocence part of the trial, it was central to the penalty phase.
Also during the penalty phase, jurors wept as they heard from Franklin's 24-year-old daughter Katrina Hannum, who testified she has nightmares every night in which she sees Malvo shoot her mother in the head.
Malvo was convicted of two counts of capital murder: one alleging Franklin's slaying was part of a series of murders, the other alleging the killing was intended to terrorize the population. The second law was passed after Sept. 11. Both counts could have brought the death penalty.
The jurors found that prosecutors proved both aggravating factors needed to impose a death sentence: that Malvo poses a future danger and that his crimes were "outrageously or wantonly vile." But such a finding does not require a death penalty, and the jury decided he did not deserve to die. The panel also recommended that Malvo be fined $200,000.
Cooley, Malvo's lawyer, agreed that Malvo's boyish appearance worked in his favor.
Prosecutors had pointed to an escape attempt Malvo made the day of his arrest and letters Malvo wrote in jail as evidence of his dangerousness. One has a drawing of a police officer in crosshairs with the notation: "Make no mistake. I would take you out at your dinner table." Another note said: "Sept. 11 we will ensure will look like a picnic to you."
During the trial, the jury heard recordings of Malvo bragging to police about killing 10 people at random, boasting haughtily that most of the victims had been brought down by a single shot, and chuckling as he recalled how a lawnmower kept rumbling along after the man pushing it was shot.
"If that's not vile," Horan said of the random killings, "there is no vile."
Malvo later told mental-health experts that he had been the triggerman in only one of the killings, that of a bus driver. But the jury did not believe him; in convicting Malvo, it concluded he was the triggerman in Franklin's slaying.
"Malvo is not out of the woods yet. He still faces potential murder trials in Maryland, the District of Columbia and Alabama; and in Alabama he may face a capital murder trial. So you can bet now that prosecutors in those jurisdictions will be angling now to prosecute him again," says CBSNews.com's Cohen.
Malvo and Muhammad both could stand trial again. Prosecutors in Maryland and Louisiana have said they want a crack at Muhammad, and Malvo could face a similar fate for shootings there.
Attorney General John Ashcroft had cited Virginia's ability to impose "the ultimate sanction" in sending Malvo and Muhammad to Virginia for prosecution.
Virginia is one of only 21 states that allow the execution of those who were 16 or 17 when they killed. Since the death penalty was reinstated in 1976, Virginia is one of only six states that have actually executed someone whose crime was committed as a juvenile.