The Norwegian Nobel Committee chairman Thorbjoern Jagland said Liu Xiaobo (LEE-o SHAo-boh) was a symbol for the fight for human rights in China.
"China has become a big power in economic terms as well as political terms, and it is normal that big powers should be under criticism," Jagland said.
It was the first Nobel for the Chinese dissident community since it resurfaced after the country's communist leadership launched economic, but not political reforms three decades ago. The win could jolt a current debate among the leadership and the elite over whether China should begin democratic reforms and if so how quickly.
Unlike some in China's highly fractured and persecuted dissident community, the 54-year-old Liu has been an ardent advocate for peaceful, gradual political change, rather than a violent confrontation with the government.
The document he co-authored, Charter 08, called for greater freedoms and an end to the Communist Party's political dominance. It was an intentional echo of Charter 77, the famous call for human rights in then-Czechoslovakia that led to the 1989 Velvet Revolution that swept away communist rule.
"The democratisation of Chinese politics can be put off no longer," Charter 08 says.
Thousands of Chinese signed Charter 08, and the Communist Party took the document as a direct challenge.
Police arrested Liu hours before Charter 08 was due to be released in December 2008. Given a brief trial last Christmas Day, Liu was convicted of subversion for writing Charter 08 and other political tracts and sentenced to 11 years in prison.
In a year with a record 237 nominations for the peace prize, Liu had been considered a favourite, with open support from winners Archbishop Desmond Tutu, the Tibetan spiritual leader the Dalai Lama and others.