The prize, awarded by the Swedish Academy, is worth 8 million Swedish crowns ($1.2 million).
Mo, who grew up at Gaomi of Shandong province in the north-east of the country and whose parents were farmers, sets his works mainly in China.
"He has such a damn unique way of writing. If you read half a page of Mo Yan, you immediately recognise it as him," said Peter Englund, head of the Academy.