Several works including his debut, Satantango and The Melancholy of Resistance, were turned into films by Hungarian director Bela Tarr.
Krasznahorkai, 71, has received many awards including the 2015 Man Booker International Prize.
The Booker judges praised his "extraordinary sentences, sentences of incredible length that go to incredible lengths, their tone switching from solemn to madcap to quizzical to desolate as they go their wayward way".
He joins an illustrious list of laureates that includes Ernest Hemingway, Toni Morrison and Kazuo Ishiguro.
The literature prize has been awarded by the Nobel committee of the Swedish Academy 117 times to a total of 121 winners.
The 2024 prize was won by South Korean author Han Kang for her body of work that the committee said "confronts historical traumas and exposes the fragility of human life".
The literature prize on Thursday is the fourth to be announced this week, following the 2025 Nobels in medicine, physics and chemistry.
The winner of the Nobel Peace Prize will be announced on Friday.
The final Nobel, the Nobel Memorial Prize in Economic Sciences, is to be announced on Monday.
Nobel Prize award ceremonies are held on December 10, the anniversary of Alfred Nobel's death in 1896.
Nobel was a wealthy Swedish industrialist and the inventor of dynamite who founded the prizes.
Each prize carries an award of 11 million Swedish kronor (nearly $A1.8 million), and the winners also receive an 18-carat gold medal and a diploma.
