In its citation, the academy said the 75-year-old playwright — whose works include "The Room," "The Birthday Party" and "The Dumb Waiter" and his breakthrough work, "The Caretaker" — restored the art form.
"Pinter restored theatre to its basic elements: an enclosed space and unpredictable dialogue where people are at the mercy of each other and pretense crumbles," the academy said.
Pinter was also cited by the 18-member academy for his efforts in promoting human rights alongside his written works.
In addition to plays, he has written for the cinema, penning such screenplays as "The French Lieutenant's Woman," "The Accident," "The Servant" and "The Go-Between."
Academy Permanent Secretary Horace Engdahl said Pinter was overwhelmed when told he had won the prize.
"He did not say many words, in fact he was very happy," he said.
The award will have two immediate consequences: increased book sales and controversy.
Last year's winner, Austrian feminist Elfriede Jelinek, drew such ire that a member of the academy publicly criticised his colleagues for picking her.
Knut Ahnlund, 82, who has not played an active role in the academy since 1996, resigned on Tuesday after he wrote in a signed newspaper article that picking Jelinek had caused "irreparable damage" to the award's reputation.
The academy, founded in 1786 by King Gustav III to advance the Swedish language and its literature, has handed out the literature prize since 1901. To date 102 men and women have received the prize, including France's Jean-Paul Sartre, who declined the 1964 prize.