"This is something that will catalyse the efforts that have been made so far in terms of taking sustained measures to take Ethiopia on the path of prosperity that we have already begun," spokeswoman Billene Seyoum told a press conference.

"When his excellency assumed the premiership in April 2018, he did inherit a lot of challenges as well. It does not mean that we're not faced with challenges at this moment."

She said that Abiy was meeting with Prime Minister Abdalla Hamdok of Sudan when the prize was announced, and that the two were discussing Sudan's political crisis which Abiy has played a role in mediating.

Earlier on Twitter Abiy's office declared "we are proud as a nation," of his win.

In a statement, his office further praised the decision as "timeless testimony to the... ideals of unity, cooperation and mutual co-existence that the Prime Minister has been consistently championing".

"Since Prime Minister Abiy Ahmed assumed political leadership in April 2018 he has made peace, forgiveness and reconciliation key policy components of his administration," the statement said.

"At a national level, the release of tens of thousands of political prisoners, granting of amnesty for media entities and political parties charged under the anti-terrorism law to return from exile and engage peacefully, widening the space for political parties... are some notable milestones.

"At the regional level, ending the two-decade stalemate between Ethiopia and Eritrea has opened up a new dimension of possibilities for co-operation between the two countries."

The statement also pointed to Abiy's attempts to reconcile differences regionally, among countries across the Horn of Africa.

However, despite Abiy's moves for peace, the Eritrea deal has been undermined by a lack of tangible progress on critical issues like border demarcation.

Hopes that it may lead to an opening up of one of the world's most isolated countries, and the ending of forced military conscription have also yet to bear fruit.

Eritrea's ambassador to Japan, Estifanos Afwerki, on Twitter hailed the decision, saying the people of Eritrea and Ethiopia "with blood, sweat (and) tears have won again over evil."

African Union chief Moussa Faki on Twitter congratulated Abiy on the win "for his historic peacebuilding efforts that have given the world hope at a time it needs servant leadership more than ever."

Kenyan President Uhuru Kenyatta joined the chorus of those congratulating Abiy.

"Prime Minister Ahmed stands out as a relentless champion for peace, stability and prosperity of his country, our region and the entire African continent," Kenyatta said in a statement.