The prize committee praised Obama for "his extraordinary efforts to strengthen international diplomacy and cooperation between peoples...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.
There were a record 205 nominees for this year's peace prize. Obama will receive the award on December 10. It includes a gold medal, a special diploma and 10 million Swedish kronor (1.4 million dollars).
But fellow awardees are divided over Obama's win. While Nelson Mandela and Mikhail Gorbachev praised the decision, Poland's anti-communist leader and 1983 Nobel Peace Prize winner Lech Walesa said, "Too fast. He hasn't had the time to do anything yet."
Critics argue that even former US President Bill Clinton didn't get the Nobel for Peace, despite three major peace accords in his term - the one in 1993 marked a new phase in the Arab-Israeli negotiation.
Obama's supporters says the committee has attached special importance to Obama's vision of, and work for, a world without nuclear weapons.
Obama is the third sitting US President to be awarded the prize,following Theodore Roosevelt in 1906 and Woodrow Wilson in 1919. FormerU.S. President Jimmy Carter won in 2002.