In Beijing, the Foreign Ministry released a short statement denouncing the award as 'a desecration'. It summoned Norway's ambassador in Beijing to protest, according to Norwegian foreign ministry.

Government spokesman Ma Zhaoxu called Liu 'a criminal who has been sentenced by Chinese judicial departments for violating Chinese law'.

He said awarding the peace prize to Liu 'runs completely counter to the principle of the prize and is also a desecration of the peace prize'.

Western political leaders and human rights campaigners worldwide welcomed the decision and urged Beijing to release Liu.

US President Barack Obama called for Liu to be released as soon as possible.

'Over the last 30 years, China has made dramatic progress in economic reform and improving the lives of its people, lifting hundreds of millions out of poverty,' Obama, last year's Nobel peace laureate, said. 'But this award reminds us that political reform has not kept pace, and that the basic human rights of every man, woman and child must be respected,' he said.

Many believe the award could boost the long-struggling pro- democracy movement and encourage efforts to challenge one-party rule on the mainland. But others fear that honouring Liu could prompt the leadership to crack down harder on dissidents.

The mainland propaganda machine wasted no time censoring news of the award on the internet.

Ma warned that relations between China and Norway could be harmed because of the award.

A Norwegian government spokeswoman said: 'We emphasised that this is an independent committee and the need to continue good bilateral relations between our countries.'

Earlier this year, Deputy Foreign Minister Fu Ying had warned the head of the Nobel Institute against granting the prize to Liu, saying it would damage ties between China and Norway as they negotiate a bilateral trade deal.

China also strongly criticised Norway after the 1989 prize went to the Dalai Lama. And the government effectively blocked news of French-Chinese writer Gao Xingjian's Nobel Literature Prize in 2000.

Premier Wen Jiabao did not take questions from journalists at a news conference in Turkey after the award was announced.

In a statement, Liu's wife, Liu Xia , expressed her gratitude on behalf of her husband to the Nobel committee, those who nominated Liu and those who have been supporting Liu since 1989, including mothers whose children were killed in the military crackdown.

'The prize should belong to all who signed Charter 08 and were jailed due to their support,' she said.

Liu is serving his 11-year sentence in a jail in Liaoning for subversion.

The veteran activist, who also helped lead student protests on Tiananmen Square in 1989, was favoured to win the prize after he was backed by international supporters including Czech president Vaclav Havel, a former dissident, who helped pen the 1977 manifesto Charter 77, which inspired Charter 08. The charter called for freedom of expression, free elections and human rights.

The award to Liu puts China's human rights record in the spotlight at a time when the country is starting to play a bigger role on the global stage as a result of its growing economic might. It also comes amid broader tensions between China and other big powers over trade and territorial disputes in which Beijing has become more assertive.

Nobel committee chairman Thorbjoern Jagland said China should expect to be under greater scrutiny as it becomes more powerful. 'We have to speak when others cannot speak,' Jagland said. 'As China is rising, we should have the right to criticise ... We want to advance those forces that want China to become more democratic.'

While noting China's economic advance, the committee said: '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.'

Leading mainland dissidents and intellectuals said the award would have a significant impact on the development of democracy and peaceful, non-violent movements.

Bao Tong , the highest-ranking official jailed over the Tiananmen crackdown, said the award 'gives a huge impetus to China's democracy [movement]'.

'But in the end, Chinese people need to fight for their human rights and democracy with their own hands,' said Bao, a former aide to the ousted party chief Zhao Ziyang.

Mao Yushi , an outspoken intellectual, said the award represented the international community's support for China's pro-democracy movement.

The last dissident to win the peace prize was Iranian lawyer and rights campaigner Shirin Ebadi, in 2003.

Liu was first jailed for two years for supporting the 1989 Tiananmen Square protest and, later, for another three years for writings that questioned the role of China's single-party political system.

Liu's 11-year sentence is believed to be one of the longest handed down on the mainland in a freedom- of-expression case. Human rights activists have deplored his imprisonment, with Amnesty International calling it a 'stark reminder' that China does not tolerate free speech.

The highly educated Liu has been a visiting scholar at several universities overseas, including Columbia University in New York and the University of Oslo. But it is Charter 08 that has made him world-renowned and left him imprisoned.

However, what Charter 08 calls for is no different, at least literally, to remarks made by some more liberal communist leaders. For instance, for the seventh time in the past two months, Premier Wen has broached the highly sensitive topic of political reform.

In the manifesto, the authors call for constitutional democracy, human rights, rule of law and the tripartite separation of powers in government. In an interview on CNN's Fareed Zakaria GPS programme aired last week, Wen said he remained committed to pressing for changes to China's political system.

'The people's wishes for, and need for, democracy and freedom are irresistible,' he said in the interview, which was taped in New York on September 23. Wen's political reform drive began in late August in Shenzhen, when he surprised many by calling for the nation's political system to be liberalised and its people granted more rights.

The Nobel prize is worth 10 million Swedish crowns (HK$11.6 million) and will be presented in Oslo on December 10.