The award comes as the president deals with a vast array of international challenges, from deciding whether to send more troops to Afghanistan, to how to deal with nuclear-ambitious Iran and North Korea.
Critics are sure to argue that Obama's accomplishments have yet to rival those of previous winners.
Lundestad admitted that the committee knew the world would be surprised by the decision and was aware that the president faces many major decisions ahead in Afghanistan, but added that the committee has made its choice and Obama has "nothing to fear."
"We knew the world would be positive, surprised and some would be stunned," Lundestad said. "We have discussed the situation in Afghanistan. We understand the foreign policy of the United States has to be a very complex one with many different considerations. But we point particularly to the overall approach."
The five-member Nobel Peace Prize committee, in announcing its decision, lauded the president for his work on climate change and international diplomacy.
"Only very rarely has a person, to the same extent as Obama, captured the world's attention and given his people hope for a better future," the chairman of the Norwegian Nobel Committee, Thorbjorn Jagland, said in a statement.
"His diplomacy is founded in the concept of those who are to lead the world must do so on the basis of values and attitude that are shared by the majority of the world's population. For 108 years the Nobel Committee has sought precisely the international policy and those attitudes for which Obama is now the world's leading spokesman. The committee endorses Obama's appeal that now is the time for all of us to take a share of responsibility for a global response for global challenges," the statement said.
When the announcement was made, even those in the room gasped in surprise.
Jagland found himself on the defensive, however, amid some criticism that Obama's work has yet to rival those of others who have won the award, considered an Olympic gold of international presidency.
"If you look at the history of the Nobel Peace Prize, we have on many occasions tried to enhance what many personalities is [are] trying to do," he said.
In his nearly nine months in office, Obama has had many firsts on the international stage -- he was the first U.S. president to address the United Nations General Assembly and the first to personally pitch a U.S. city to the International Olympic Committee. He also spoke at the G-20 meeting, pushed the international community to act on climate change, reached out to the Muslim world with a speech in Cairo in June and met with Israeli and Palestinian leaders in an attempt to accelerate the Middle East peace process.
But in terms of actual accomplishments, the list has yet to be filled, and it remains to be seen whether Obama's overtures to Iran and North Korea on nuclear weapons and to the Middle East have any bearing. His rhetoric on climate change has also been met with some resistance from India and China. In addition, Obama inherited two wars, and the growing violence in Afghanistan and Pakistan remains a key international challenge that the Obama administration still has to tackle.
Worek said throughout the history of the Nobel, the prize has been awarded for accomplishments and results, not for efforts the committee hopes one will make. He said he cannot think of any past precedent for when a prize was "rewarded for hope."