The Nobel Committee said he won it for "his extraordinary efforts to strengthen international diplomacy and co-operation between peoples".
The committee highlighted Mr Obama's efforts to support international bodies and promote nuclear disarmament.
There were a record 205 nominations for this year's prize. Zimbabwe's prime minister and a Chinese dissident had been among the favourites.
The laureate - chosen by a five-member committee - wins a gold medal, a diploma and 10m Swedish kronor ($1.4m).
"Only very rarely has a person to the same extent as Obama captured the world's attention and given its people hope for a better future," the Norwegian committee said in a statement.
"His diplomacy is founded in the concept that those who are to lead the world must do so on the basis of values and attitudes that are shared by the majority of the world's population."
Asked why the prize had been awarded to Mr Obama less than a year after he took office, Nobel Committee head Thorbjoern Jagland said: "It was because we would like to support what he is trying to achieve".
"It is a clear signal that we want to advocate the same as he has done," he said.
He specifically mentioned Mr Obama's work to strengthen international institutions and work towards a world free of nuclear arms.
BUHAHAHAHAHAHAHAHAHAHAHAHAHAHA
I expect the reactions around the wingnutosphere/FOXNEWS will range from braying that he doesn't deserve it to this being further proof that he is the anti Christ. Still its awfully hard to support these idiots calling him a nazi and a communist etc right after he wins the Nobel Peace Prize.
Gotta love it!
Update: Wingnuts are nothing if not predictable. You can track their public implosions here.
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