Kathrin Schmidt, a 51-year-old Berlin-based author, has won the 25,000 euro ($37,000) German Book Prize for her novel Du Stirbst Nicht (You're Not Going to Die).
The novel describes a woman who wakes up in hospital after an aneurysm, with much of her memory lost, and painfully reconstructs her life. It is based on what Schmidt, a former psychologist in communist East Germany, observed in aphasia patients.
The seven judges said Schmidt used spare, sometimes disturbing language to portray the sick woman's inner world.
The annual award for best novel written in the German language was announced in Frankfurt's town hall on the eve of the October 14-18 Frankfurt Book Fair. It is intended as a recommendation to world publishers to translate the novel into other languages.
The judges passed over this year's winner of the Nobel Prize for Literature, Herta Mueller, 56, who was one of the six finalists.
Hubert Winkels, spokesman for the judges, said it had taken "a lot of fortitude" to ignore the "outside" influence by the Nobel in Mueller's favour.
Mueller's novel describes the hunger of the Soviet gulags from the point of view of a 17-year-old youth locked up in them when World War II ends in 1945. Titled Atemschaukel in German, it has the English working title Everything I Own I Carry with Me.
The five runners up shared consolation prizes of 2,500 euros apiece.
German publishers nominated 154 novels for the German Book Prize, Germany's best-known award for fiction.
The prize was instituted in 2004 to show the world that German fiction was highly readable, often had plots and was not just focussed on the inner world of troubled protagonists.
But after complaints in Germany's cultural elite that the prize is too oriented to mass tastes, the judges have tended to prefer the traditional style of German fiction which dissects suffering and mental distress.