Rights group Amnesty International said Mr Liu was a "worthy winner".
But Catherine Baber, deputy Asia-Pacific director, said: "This award can only make a real difference if it prompts more international pressure on China to release Liu, along with the numerous other prisoners of conscience languishing in Chinese jails."
No candidates are announced ahead of the Peace Prize but others mentioned in the media included Afghan women's rights activist Sima Samar, Russian human rights activist Svetlana Gannushkina, former German chancellor Helmut Kohl and Zimbabwean Prime Minister Morgan Tsvangirai.
The Nobel committee had to defend last year's controversial Peace Prize choice of US President Barack Obama.
Liu Xiaobo: 20 years of activism
In his time Liu Xiaobo has been a political activist, author, university professor and an annoyance to the Chinese Communist Party.
He has now been awarded the Nobel Peace Prize, despite fierce opposition from the Chinese government.
Outside the country of his birth, he is known as one of China's leading dissidents, winning awards and the attention of the world's media.
But few people inside China have heard his name, and he has repeatedly faced imprisonment and surveillance from the Chinese government.
He is currently serving an 11-year prison sentence for "subverting state power".
That charge came after he helped write a manifesto, called Charter 08, calling for political change in China.Subverting state power?
The 54-year-old first came to public prominence in 1989, during the bloody suppression of protesters in Beijing's Tiananmen Square.
He returned home from the United States to take part in the demonstrations, but was sent to prison for nearly two years for the role he played.
"The massacre in 1989 made a very deep impression on me," he said in an interview he gave to the BBC just a few months before he was arrested in 2008.
The activist once worked as a professor at Beijing Normal University, although he was eventually banned from teaching.
In 1996 he was again put away for speaking out about China's one-party political system, but this time he was sent to a re-education-through-labour camp for three years.
It was while there that he got married to Liu Xia.
Since then he has continued to discuss a range of taboo subjects, including criticising China's treatment of Tibetans.
End Quote Liu Xia Liu Xiaobo's wife
One day, even if he's not regarded as a hero, he'll be thought of as a very good citizen”
This has brought him to the attention of those outside China who are trying to improve human rights in the communist party-ruled country, and he has received several prizes over the years.
At his trial in December last year the United States government felt compelled to speak out.
"We call on the Government of China to release [Liu Xiaobo] immediately and to respect the rights of all Chinese citizens to peacefully express their political views," read a statement from the US State Department.
The document that got him into trouble, Charter 08, was released in December two years ago. It calls for a new constitution in China, an independent judiciary and freedom of expression.
It was backed by about 300 academics, artists, lawyers and activists, who want a fuller debate about China's future political development.
Two days before it was due to be published the police made a late-night raid on Mr Liu's home and took him away.
His wife said she could not initially find out what had happened to him because the authorities would not admit to taking him.Monthly visits
It was not until nearly one month later that the authorities finally confirmed they had arrested him.
He had a one-day trial in December last year and was sentenced to 11 years a few days later - on Christmas Day.
Some suspected the Chinese authorities had chosen that day because most people in the West would be on holiday, and not notice.
Liu Xia now visits her husband once a month at the prison where he is serving his sentence, in Liaoning Province in north-east China.
They have hour-long meetings watched over by two guards and a security camera.
She said: "Mentally and physically he's fine. He runs for an hour each day, he reads and he writes me letters."
As a wife, Liu Xia's greatest wish is for her husband to be released so he can come home to her.
She believes his contribution to human rights will one day by recognised.
"Now his name is unknown. But one day, even if he's not regarded as a hero, he'll be thought of as a very good citizen - a model example."
Text: Committee statement on the Nobel Peace Prize 2010
The Norwegian Nobel Committee has decided to award the Nobel Peace Prize for 2010 to Liu Xiaobo for his long and non-violent struggle for fundamental human rights in China.
The Norwegian Nobel Committee has long believed that there is a close connection between human rights and peace. Such rights are a prerequisite for the "fraternity between nations" of which Alfred Nobel wrote in his will.
Over the past decades, China has achieved economic advances to which history can hardly show any equal.
The country now has the world's second largest economy; hundreds of millions of people have been lifted out of poverty.
Scope for political participation has also broadened.
China's new status must entail increased responsibility.
China is in breach of several international agreements to which it is a signatory, as well as of its own provisions concerning political rights.
Article 35 of China's constitution lays down that "Citizens of the People's Republic of China enjoy freedom of speech, of the press, of assembly, of association, of procession and of demonstration".
In practice, these freedoms have proved to be distinctly curtailed for China's citizens.
For over two decades, Liu Xiaobo has been a strong spokesman for the application of fundamental human rights also in China.
He took part in the Tiananmen protests in 1989; he was a leading author behind Charter 08, the manifesto of such rights in China which was published on the 60th anniversary of the United Nations' Universal Declaration of Human Rights, the 10th of December 2008.
The following year, Liu was sentenced to eleven years in prison and two years' deprivation of political rights for "inciting subversion of state power".
Liu has consistently maintained that the sentence violates both China's own constitution and fundamental human rights.
The campaign to establish universal human rights also in China is being waged by many Chinese, both in China itself and abroad.
Through the severe punishment meted out to him, Liu has become the foremost symbol of this wide-ranging struggle for human rights in China.
China's Liu Xiaobo wins Nobel Peace Prize
Liu Xiaobo, an irrepressible, chain-smoking Chinese dissident imprisoned last year for subversion, was awarded the Nobel Peace Prize Friday for helping to spearhead a campaign for more freedom in China.
In a statement, the Nobel Committee said Liu, 54, deserved the prize "for his long and non-violent struggle for fundamental human rights in China."
Analysts said the honor was aimed in part at increasing pressure on China to ease its crackdown on religious and political activists. But China's government told reporters the committee had violated its own principles by giving the award to a "criminal."
In announcing the award, the committee lauded Liu's efforts over more than two decades to demand freedom of speech, assembly, religion and other forms of expression for Chinese citizens.
China's "new status" as the world's second-largest economy "must entail increased responsibility," the committee said. It said Beijing must heed the call of Liu and others to award its citizens the most basic freedoms.
"Through the severe punishment meted out to him, Liu has become the foremost symbol of this wide-ranging struggle for human rights in China," the Nobel statement said.
Liu is serving his 11-year sentence at Jinzhou prison in Liaoning, hundreds of miles from his home and wife, Liu Xia, in Beijing. In an interview shortly before the announcement, Liu Xia said she was thankful her husband's physical condition seems to have improved in jail, and grateful that he's allowed to read and that the two can exchange regular letters.
"We have no regrets," she said. "All of this has been of our choosing. It will always be so. We'll bear the consequences together. I've known Liu since 1982. I've watched him change little by little year by year, and we know that we have to pay the price under the current situation in China."
In the weeks running up to the announcement, Liu was considered a top contender to win the award. But China's government had warned Norway not to award Liu its most prestigious prize, saying that the essayist did not qualify for the honor.
Analysts predicted that in the short-term, China's one-party state would react to the award by intensifying an already tough campaign against dissidents, religious activists and non-governmental organizations. Although China outwardly appears strong, with a world-beating economic growth rate, prosecutions for "state security" offenses are approaching numbers not seen since the bloody crackdown on student-led protests around Tiananmen Square in 1989.
But in the long-term, a wide spectrum of Chinese and foreigners said, Liu's award could actually resonate more deeply within China than any similar act in years--significantly more so than the Nobel Peace Prize that was awarded to the Dalai Lama in 1989 or the Nobel prize for literature given to dissident writer Gao Xingjian in 2000.
First of all, Liu will be the first Chinese citizen to ever win the award. (The Dalai Lama has status as a refugee. And Gao is a French citizen.) Second, Liu, unlike most Chinese dissidents, remains well-known and well-liked in China.
Prickly, with a thick northern drawl, tobacco-stained teeth and an infectious laugh, he's always been considered part of the "loyal opposition," less a theoretician of a democratic revolution than a tough urban gadfly.
Although in and out of jail for stating his beliefs, writing letters and challenging the state for two decades, Liu has escaped the sentence of irrelevance meted out to so many of his dissident contemporaries.
Some observers, however, said the award would feed into a sense among many young Chinese that the West is out to get China and that "Cold War" thinking still dominates mindsets in the developed world.
"I worry about the effect of this prize on China's younger generation," said Zhu Feng, a professor of international relations at Beijing University. "It will be seen as new evidence about how the West is unfriendly to China."
Liu's latest sentence was his longest. Announced on Christmas Day 2009 - because the Chinese government believes Westerners are less likely to take notice on a holiday--Liu's sentence of 11 years was for attempting to subvert the state.
His specific crime was that he volunteered to have his name lead a list of signatories to a document called "Charter 08." Modeled after the Charter 77 movement in Czechoslovakia during the Cold War, Charter 08 called for greater freedom of expression, human rights, and for free elections.
Ultimately, more than 8,000 people have signed China' s charter.
Published on Dec. 10, 2008, the 60th anniversary of the Universal Declaration of Human Rights, the charter "was to put a stake in the ground and say here's an alternate vision of China," said Perry Link, the renowned China scholar who worked with the group to translate their manifesto into English. "It was definitely a long-term program."
Among the demands were for a judiciary not controlled by the Communist Party, meaningful elections and the freedoms of association, assembly, expression and religion. "The current system has become backward to the point that change cannot be avoided," the charter read. "This situation must change! Political democratic reforms cannot be delayed any longer!"
Liu played an important role as the crafters of the charter hashed out the wording, Link said. He fought to excise any mention of the banned sect Falun Gong from the document because, he argued, the charter's purpose should not be to deal with specific human rights cases.
And he helped work out a compromise over mentioning the Tiananmen Square crackdown - which was raised in the preamble but not in the actual body of the charter.
Link, who spent much of that month talking with Liu and others as the manifesto went from one draft to another, recalled that Liu wasn't a leader of the group in the beginning. "But once he saw it was going somewhere, he naturally volunteered to be out front," Link said.
Liu didn't hog publicity, Link added, "he just doesn't shrink from putting his head on the line. He was like a moth to the flame."
After he was sentenced, Liu's lawyer released a simple statement from his client: "I have long been aware that when an independent intellectual stands up to an autocratic state, step one toward freedom is often a step into prison," it said. "Now I am taking that step; and true freedom is that much nearer."
Ai Weiwei, a signatory of the Charter 08 document who designed the Bird's Nest stadium for China's Summer Olympics, said Friday's award was at least a sign that "the world is paying attention to China."
But the award "won't change much in China," Ai predicted. "More people need to wake up."
Liu has taken risks with his life throughout his career. In 1989, he left a cushy post as a visiting scholar at Columbia University to return to China to participate in demonstrations in Tiananmen Square.
On the night of June 3, 1989, he was one of four dissidents who negotiated with the People's Liberation Army to allow the last several hundred students to peacefully vacate the square. After the crackdown he spent two years in jail.
Liu was dispatched to a re-education camp in 1996 for co-writing an open letter that demanded the impeachment of then-president Jiang Zemin.
From then until his arrest in December, 2008, two days before the charter was released, Liu lived a life of constant harassment by the security services. He was repeatedly questioned because of his views or his essays, which were passed around the Internet by thousands of his readers.
Liu's wife, Liu Xia, said the toughest time for her was after Liu was arrested in 2008 but before he was indicted. He basically disappeared, she said, into the maw of China's security state.
"For those six and half months, I only saw him twice, it was weird for both of us," Liu Xia recalled. "I was taken to a hotel in a suburb of Beijing, Xiaobo was taken there too, and he told me he didn't know where he was."
But when the indictment came, "I felt very calm," she said. "I told our lawyer that Xiaobo would probably be sentenced at least 10 years. Then it came out 11, very close to what I expected."
Correspondent William Wan and researcher Liu Liu in Beijing contributed to this report. email@example.com
sOURCE : The washington Post