Judges of the 2011 Man Asian Literary Prize described Shin's novel "Please Look After Mom", which has already sold almost two million copies in South Korea, as the clear stand-out in a strong field dominated by South Asians.
Judging panel chairwoman Razia Iqbal said it was a "beautiful, poignantly told tale" with a "compelling structure" that set it apart from the others.
"It's a very intimate portrait of a family's search for their mother, but it's also a portrait of Korea, post the Korean War," she said as the award was announced at a ceremony in Hong Kong.
"Looking at how, through the microcosm of the family, how the country is coming to terms with moving into modernity, leaving behind its traditional, rural ways of life.
"And through this, as it transpires, a dysfunctional family, we learn a lot about the family but also about the country."
Shin is the first woman to win the award and the first South Korean to be shortlisted.
"As a Korean writing in Korea in the Korean language, to be winning this prize feels like a new start in more ways than one, and that makes me happy," she said after accepting the $30,000 prize.
"Please Look After Mom" examines the often painful self-analysis that follows the death or loss of a loved one.
"The journey to find the mother in the book is the journey to regain what we've lost in the progress of modernity. And that was the theme I wanted to explore as a mother," Shin said.
"I feel like to think about mother is to think about oneself, a reflection of oneself."
Shin's work was chosen from an expanded shortlist of seven novels instead of the usual five because of the strength of fiction coming out of Asia last year, the judges said.
South Asian writers dominated the shortlist.
Jamil Ahmad from Pakistan was nominated for "The Wandering Falcon", and India was represented by three writers -- Jahnavi Barua ("Rebirth"), Rahul Bhattacharya ("The Sly Company of People Who Care") and Amitav Ghosh ("River of Smoke").
From East Asia, China's Yan Lianke was shortlisted for "Dream of Ding Village" and Japan's Banana Yoshimoto for "The Lake".
The four South Asian novels were originally written in English, while those from China, Japan and South Korea were judged in translation.
"Please Look After Mom" is Shin's first book to appear in English, although she is one of Korea's most acclaimed writers. She lives in Seoul and is a visiting scholar at Columbia University in New York.
"Shin?s prose, intimate and hauntingly spare in this translation by Chi-Young Kim, moves from first to second and third person, and powerfully conveys grief?s bewildering immediacy," The New York Times reviewer wrote last year.
The annual Man literary award began in 2007 and is given to the best novel by an Asian writer, either written in English or translated into English, and published in the previous calendar year.
This year's judges included Chang-rae Lee, Pulitzer-prize finalist and author of "The Surrendered", and Vikas Swarup, author of "Q&A", the book that was made into Oscar-winning film "Slumdog Millionaire".
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