Desai, whose mother and fellow writer Anita was three times
shortlisted for the Booker, won the ₤50,000 prize at her first attempt for her sweeping novel The Inheritance of Loss. She has just turned 35.
"It was a magnificent novel of humane breadth and wisdom, comic tenderness and powerful political acuteness," said the chairwoman of the judges Hermione Lee.
Picking from a shortlist of relative unknowns after rejecting a string of literary heavyweights, Lee said "the winner was chosen after a long, passionate and generous debate".
"It was absolutely not a compromise," she said after the judges spent two hours picking the winner.
Young accolade
The previous youngest woman winner had been Desai's fellow Indian Arundhati Roy who won the prize in 1997 when just a month short of her 36th birthday.
The youngest ever winner was Ben Okri who landed the Booker in 1991 at the age of 32.
Desai's novel tells the story of an embittered judge who wants to retire in peace in his crumbling house in the Himalayas. But his life is turned upside down with the arrival of his orphaned granddaughter.
The judges said that Desai, who was educated in India, England and the United States, had taken eight years to write the carefully crafted novel that has now catapulted her into the literary limelight.
She fought off stiff competition from Sarah Waters' The Night Watch, Edward St Aubyn's Mother's Milk and Hisham Matar's In The Country of Men.
Two Australians also made the shortlist -- Kate Grenville's The Secret River and M.J. Hyland's Carry Me Down.
Prestigious award
The prize, founded in 1969, rewards the best book of the year by a writer from Britain, Ireland or a Commonwealth country. It guarantees the winner instant literary fame and a place in bestseller lists around the globe.
In the past, the Booker shortlist has been attacked by critics who argue that the winners are all too often turgid tomes that would only appeal to literary academics.
The award, sponsored by the futures brokers Man Group, invariably stirs controversy.
This year the big shock was the omission of leading authors and hotly fancied contenders like Australian Peter Carey and David Mitchell.