The first African-American to win the White House, Obama was praised by the Norwegian Nobel Committee for "his extraordinary efforts to strengthen international diplomacy and cooperation between peoples."
"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 committee said. "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."
The committee also said Obama has "created a new climate in international politics."
The announcement came as a surprise -- Obama's name had not been mentioned among front-runners -- and the roomful of reporters in Oslo, Norway, gasped when he was named.
In his short time in office, Obama has acted on a wide range of issues from the economy to terrorism and wars in Afghanistan and Iraq.
Obama also lobbied unsuccessfully to bring the 2016 Olympics to Chicago, Illinois. After returning from Denmark, Obama expressed no regret about his trip, saying it is "always a worthwhile endeavor to promote and boost the United States."
Former Finnish President Martti Ahtisaari, last year's Peace Prize laureate, said it was clear the Nobel committee wanted to encourage Obama on the issues he has been discussing on the world stage.
"I see this as an important encouragement," Ahtisaari said.
The committee wanted to be "far more daring" than in recent times and make an impact on global politics, said Kristian Berg Harpviken, director of the International Peace Research Institute.
Wangari Muta Maathai, the Kenyan who won the 2004 Peace Prize, said Obama's win will help Africa move forward.
"I think it is extraordinary," she said. "It will be even greater inspiration for the world. He has shown how we can probably come together, work together in a cooperative way."
The award comes at a crucial time for Obama, who has administration officials dispatched on global peace missions.
Obama's envoy to the Middle East, George Mitchell, has returned to the region to advocate for peace negotiations between Israelis and Palestinians. Mitchell met Thursday with Israeli President Shimon Peres. He plans to meet Friday with Prime Minister Benjamin Netanyahu before talking with Palestinian leaders in the West Bank.
Secretary of State Hillary Clinton starts a six-day trip to Europe and Russia on Friday. On the trip, the secretary will discuss the next steps on Iran and North Korea, and international efforts to have the two countries end their nuclear programs.
The centerpiece of the trip will be her visit to Moscow, where she will work toward an agreement to take the place of the Start II arms control pact, which expires December 5. She will also address the new bilateral presidential commission that is working on a broad range of issues, from arms control to health.
Obama became the third sitting U.S. president to win the prestigious prize. Jimmy Carter was the fourth American leader to win, but he was long out of office when he was recognized in 2002.
This year's peace prize nominees included 172 people and 33 organizations, the highest number of nominations ever. The committee does not release the names of the nominees.
The Nobel recipient receives a prize of about $1.4 million.
Source: CNN