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During a moving speech to distinguished guests - including King Olav of Norway - Mr Luthuli said he considered the award "a recognition of the sacrifices made by the peoples of all races [in South Africa] particularly the African people who have endured and suffered so much for so long".
Mr Luthuli received his prize for advocating non-violent resistance to racial discrimination dressed in traditional Zulu attire with a leopard-skin hat and necklace of lion's teeth.
He described South Africa as a "museum piece" and its policy of apartheid as "a hangover from the dark ages of mankind, a relic of an age which everywhere else is dead or dying".
He said his aim and that of his supporters was to end "such evils as white supremacy and racial discrimination, all of which are a threat to peace".
The South African authorities stripped him of his chieftainship for refusing to relinquish leadership of the ANC which was banned last year.
His movements are also restricted to a Zulu reservation but he was granted special permission to travel to Norway to accept his prize.
He is also under a suspended sentence for burning his pass, an identity document that must be carried only by non-white South Africans.
At the award ceremony in Oslo University, the chairman of the Nobel peace prize committee, Gunnar Jahn, paid tribute to the 62-year-old African leader in his struggle for human rights.
Mr Jahn said Mr Luthuli, who led the ANC from 1952 until it was banned last year, had done well to reject the use of force in his quest for racial harmony in South Africa.
He also praised Dag Hammarskjold, the late UN Secretary-General, who was today awarded the 1961 Nobel Peace Prize posthumously for his efforts to secure peace in Africa.
He was killed in a plane crash in Northern Rhodesia on 18 September this year and today his prize was accepted by Rolf Edberg, Swedish Ambassador to Norway.
Three days later South Africa's Foreign Minister Eric Louw condemned Alfred Luthuli's acceptance speech as "propaganda and incitement in Europe".
In 1962 Mr Luthuli was prohibited from attending meetings or making speeches and all his statements were banned from South African media.
Then on 21 July 1967 he was killed by a train as he was crossing a railway bridge near his home. Ten thousand people attended his funeral in the Groutville African Reserve.
After the ANC was forced to go underground in 1960 it switched to violent tactics such as industrial and economic sabotage through its military wing led by Nelson Mandela.
The ban on the ANC was not lifted until 1990. Mr Mandela was himself awarded the Nobel peace prize with President FW de Klerk in 1993 and elected South Africa's first black president in the country's first multi-racial elections held in 1994.
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