The Swedish Academy, which awards the prize each year, hailed Kertesz for "exploring how individuals can survive when subjected to "barbaric" social forces.
Kertesz, 72, who was born in Budapest, was deported to Auschwitz as a teenager in 1944, and then to Buchenwald, where he was liberated in 1945.
"For him Auschwitz is not an exceptional occurrence," said the academy. "It is the ultimate truth about human degradation in modern experience."
Uncompromising
Kertesz's experiences were detailed in his first novel, 1975's Sorstalansag (Fateless), the story of a young man who is arrested and taken to a concentration camp but survives.
"The refusal to compromise in Kertesz's stance can be perceived clearly in his style, which is reminiscent of a thickset hawthorn hedge, dense and thorny for unsuspecting visitors," said the academy.
The award, worth 10 million Swedish kronor (£690,000) will be presented to Kertesz by Sweden's King Carl XVI Gustaf, at a ceremony in Stockholm on 10 December.
'Happy'
The head of the Hungarian Writers' Federation, Marton Kalasz, said that they were delighted with the decision.
"First of all, he is an excellent writer, and what is more, he is Hungarian. We are all very, very happy," Mr Kalasz said.
"We are glad that his career has gone this way, that the significance of his work has become known worldwide thanks to translators and primarily, to German publishers."
The winner of the annual award is decided upon by the 18 lifetime members of the 216-year-old Swedish Academy.
Secrecy
They make their selection at one of their weekly meetings and shroud it in such secrecy that the date of the announcement is not even revealed until two days beforehand.
Nominees have not been publicly revealed for 50 years, although many of the same authors are thought to make the shortlist every year.
Some of the greatest names in literature - Tolstoy, Proust, Hardy, Chekhov, Ibsen, James Joyce, Joseph Conrad, Kafka, Brecht, to name just some - have missed out on the prize.
Last year's award went to VS Naipaul, the novelist and short story writer born in Trinidad to parents of Indian descent.
It is the latest in a week's worth of Nobel prizes, with the medicine, physics, chemistry and economics awards having already been announced.