In making the announcement, the academy praised the work of the 62-year-old, "who, in novels of great emotional force, has uncovered the abyss beneath our illusory sense of connection with the world".
Kazuo Ishiguro's work is most associated with the themes of memory, time, and self-delusion.
His novel Never Let Me Go was made into a film with Carey Mulligan and Andrew Garfield.
The 2017 Literature laureate gave his reaction to the BBC.
"It's a magnificent honour, mainly because it means that I'm in the footsteps of the greatest authors that have lived, so that's a terrific commendation."
The author Salman Rushdie gave his thoughts to The Guardian on his happiness for his friend winning the prize.
"Many congratulations to my old friend Ish, whose work I’ve loved and admired ever since I first read A Pale View of Hills. And he plays the guitar and writes songs, too! Roll over Bob Dylan," he told The Guardian.
Kazuo Ishiguro, whose family moved to England from Japan when he was five years old, has written eight books, as well as scripts for film and television. He is a British citizen and his work has been translated into over 40 languages.
Ishiguro's first novel in ten years, The Buried Giant (2015) explores how memory relates to oblivion, history to the present, and fantasy to reality.
He is the tenth British writer to win the Literature prize.