Judges said it was a close-run contest but eventually picked Banville for what they called his “masterly study of grief, memory and love recollected”.
“I must thank the judges who are suddenly my best friends,” Banville said after his shock win.
Bookmakers had made Banville a 7-1 outsider to land the coveted prize, with British author Julian Barnes hot favourite to win the Booker at his third attempt.
Banville confessed he had been too drunk to take in the evening when first shortlisted for the Booker Prize back in 1989.
“I am much less inebriated,” he said. “The last time I was so drunk … I was good this time and older and I hope a tiny bit wiser.”
Asked how he would spend his ₤50,000 (A$120,554) prize, he said it would be on “good works and strong drink”.
The prize, founded in 1969, rewards the best book of the year from British, Irish and Commonwealth writers and virtually guarantees the winner a bestseller around the world.
Banville, 59, is the first Irish winner of the Booker since Roddy Doyle in 1993 with Paddy Clarke Ha Ha Ha.
Banville, reflecting on Ireland’s troubled past relationship with England, said: “The English did many terrible things but one great thing you did was give us this extraordinary language.”
Chairman of the judges John Sutherland said it was a “closely contested last round in which the judges felt the level of the shortlisted novels was as high as it had ever been”.
The Sea, Banville’s 14th novel, tells the tale of widower Max Morden returning to the seaside village where he spent a formative childhood summer, plunging him back into his darkest memories.
Graham Sharpe, spokesman for bookmakers William Hill, regretted the omission of three literary heavyweights from the 2005 shortlist – Salman Rushdie, JM Coetzee and Ian McEwan.
“We are left with a low-profile bunch of authors. This is an average rather than an extraordinary year,” he said.