He was awarded the prize for his efforts to “achieve peace and international cooperation”.
Ethiopia reached a peace deal with Eritrea last year, ending a 20-year military stalemate following their 1998-2000 border war.
He was named as the winner of the 100th Nobel Peace Prize in Oslo.
The prize, worth nine million Swedish crowns (about £730,000; $900,000), will be awarded in Oslo in December.
A total of 301 candidates had been nominated for the prestigious award, including 223 individuals and 78 organisations.
There had been great speculation over who would win the prize, with climate activist Greta Thunberg widely tipped as the favourite. Under the Nobel Foundation’s rules, nomination shortlists are not allowed to be published for 50 years.
Who is Abiy Ahmed?
After becoming prime minister in April 2018, Mr Abiy introduced massive liberalising reforms to Ethiopia, shaking up what was an extremely tightly controlled nation.
He freed thousands of opposition activists from jail and allowed exiled dissidents to return home. Most importantly, he signed a peace deal with Ethiopia’s neighbour Eritrea, ending a two-decade conflict.
But his reforms also lifted the lid on Ethiopia’s ethnic tensions, and the resulting violence forced some 2.5 million people from their homes
Source: BBC