The winning novel: An "epic tale of jazz and juju"
The surprise winner receives £5,000 in prize money and goes on to compete for the Whitbread Book of the Year - worth £25,000 - alongside the other Whitbread winners and the winner of the Whitbread Children's Book of the Year.
The novelist told BBC News Online he was "completely astounded", as the publication of Twelve Bar Blues had met with a "deafening silence".
The Whitbread first novel award went to Something Like A House by Sid Smith, a story set during the Chinese Cultural Revolution of the 1960s.
And the Whitbread poetry award has gone to Selima Hill for Bunny and the biography award to Diana Souhami for Selkirk's Island - a study of Alexander Selkirk, the man who inspired Daniel Defoe's classic novel, Robinson Crusoe.
Neate managed to beat off competition not only from former Booker prize winner McEwan - he also trounced Booker nominee Andrew Miller and Helen Dunmore.
He was born in Putney and went to Cambridge university but his novel Twelve Bar Blues draws on his experience as a gap year teacher in Zimbabwe.
He has said he is fascinated by magic, myth and music and the Whitbread judges praised the "electrifying prose" in what they called a "sprawling and unusual extravaganza of a novel".
Neate told BBC News Online: "I have read almost everything Ian McEwan has ever written - I thought he was going to win.
"I find the whole thing a bit embarassing."
'Detail'
Sid Smith chose to write his award-winning debut novel about China despite never having visited the country, his nearest contact being a "one-hour stopover at Hong Kong Airport", according to the author.
But the judges praise what they called the "beautifully observed detail of the texture of the lives of Chinese peasants".
Poetry prize winner Selima Hill is the only poet to have been shortlisted for the Whitbread, Forward and TS Eliot Prizes.
Diana Souhami's biography of Alexander Selkirk and the island where he was marooned is, say the judges, "as hypnotic and compelling as the island that forms its real subject".
The Whitbread Book of the Year and the Children's Book of the Year will be selected on 22 January 2002 by a panel of nine judges, chaired by Channel 4 broadcaster and journalist Jon Snow.
The Whitbread Prizes are open to writers based only in the UK and Ireland.