In its release the academy said Naipaul, 69, was selected for writing often about "the history of the vanquished." His books have involved events in his native Trinidad, India, Africa, the Americas, Islamic countries and Great Britain, where he moved when he was 18.
The academy called Naipaul "(Joseph) Conrad's heir" and said his short stories marked a "blend of (Anton) Chekhov and calypso."
"In allowing peripheral figures their place in the momentousness of great literature, Naipaul reverses normal perspectives and denies readers at the center their protective detachment," the academy said.
Naipaul's first published book was "The Mystic Masseur," described by the academy as a series of "farcical yarns," in 1957. He continues to work, having published "Half a Life" this year.
"Naipaul is a modern 'philosophe,' carrying on the traditions that started originally with 'Lettres persanes' and 'Candide.' In a vigilant style, which has been deservedly admired, he transforms rage into precision and allows events to speak with their own inherent irony."
The Nobel Prize in Literature includes a cash award of about $940,000. The prizes will be formally presented Dec. 10, the birthday of Alfred Nobel, the creator of the award.
Last year's Nobel Prize for Literature went to Gao Xinghjian, the first time a Chinese writer was so honored. Gao's work was cited "for an oeuvre of universal validity, bitter insights and linguistic ingenuity which has opened new paths for the Chinese novel and drama," the academy said. Gao's best-known work is "Soul Mountain." Much of his work was banned from China.
Multiple winners were named in the four Nobel categories announced earlier this week, with U.S. natives being named 10 of the 12 laureates. The others were one German and one Japanese. The final Nobel Prize of the year -- the Peace Prize -- is to be announced Friday.
The winner of two Nobel prizes were announced Wednesday, with three Americans sharing the prize for the Economic Sciences and two U.S. scientists and one from Japan will be honored in the Chemistry category.
George Akerlof, of the University of California-Berkley; A. Michael Spence, from Stanford University; and Joseph Stiglitz, from Columbia University; in the 1970s developed the foundations of the theory of "asymmetric information" as it relates to stock markets. Their work has become an important tool in the study of the economics of traditional agricultural markets in developing countries to modern financial markets, the academy said.
The 2001 prize for chemistry would be shared by K. Barry Sharpless, with the Scripps Research Institute in La Jolla, Calif., who will be given half the award; and William Knowles, formerly with Monsanto Company in St. Louis; and Ryoji Noyori, with the Nagoya University in Chikusa, Japan, who will share the other half. The chemists' work on the molecular level have led to important advances -- some already used in the drug industry -- in the developed of pharmaceuticals.
On Monday it was announced that American Lee Hartwell and Britons Tim Hunt and Paul Nurse had won the 2001 Nobel Prize in Medicine for their research into working mechanism of cells, considered vital knowledge in the fight against diseases such as cancer.
The prize for physics was announced Tuesday, with it going to Eric Cornell and Carl Weiman, both working in Colorado; and Wolfgang Ketterle at the Massachusetts Institute of Technology. They were honored for their research that proved the existence of the Bose-Einstein condensate, a new form of matter that it neither solid, liquid nor gas. The development will have implications in precision measurements and nanotechnology.