Liu, a prominent dissident since the 1989 Tiananmen Square pro-democracy protests, died from multiple organ failure on Thursday, having not been allowed to leave the country for treatment for late-stage liver cancer.
He became the first Nobel peace prize winner since German pacifist Carl von Ossietzky to die in custody.
Liu was diagnosed with late-stage liver cancer in May while serving an 11-year sentence for inciting subversion.
Last month he was granted medical parole and moved to a hospital in Shenyang, where he was reportedly treated in an isolated ward under armed guard.
China resisted a global outcry supporting his wish to travel abroad for medical treatment, insisting that Liu was receiving the best care possible.
News of Liu’s death has triggered an outpouring of dismay among his friends and supporters.
"There are only two words to describe how we feel right now: grief and fury," family friend and activist Wu Yangwei, better known by his penname Ye Du, said.
"The only way we can grieve for Xiaobo and bring his soul some comfort is to work harder to try to keep his influence alive."
A prolific political essayist and poet, Liu co-authored the pro-democracy manifesto Charter 08 in 2008.
The charter attracted 10,000 signatures before Liu's arrest.
In a statement that he had hoped to read out in court when he was sentenced, Liu wrote that he had "no enemies" and did not regret speaking out.
"What I demanded of myself was this: Whether as a person or as a writer, I would lead a life of honesty, responsibility and dignity," he said.
A scholar of Chinese literature and philosophy, Liu came to prominence following the 1989 pro-democracy protests centred in Tiananmen Square, Beijing, which he called a "major turning point" in his life.
At that time, Liu was a visiting scholar at Columbia University in the US. He rushed early to Beijing to join the movement that was sweeping the country and which the Communist Party regarded as a grave challenge to its authority.
On the night of June 3-4, when armoured vehicles and soldiers closed in on Tiananmen Square, Liu and others negotiated with the military for the safe passage of hundreds of students.
The military crackdown killed hundreds, possibly thousands, of people. Without Liu and his friends, the bloodshed might have been worse.
Days later, he was arrested and spent nearly two years in detention.
After his release, he was offered asylum in Australia but refused. He lost his teaching position with Beijing Normal University and was prohibited from publishing again in China, a move he described as losing his "beloved lecturn".
Liu was detained for the second time in 1995 after drafting a plea for political reform. The following year, he was sentenced to three years in a labour camp for his writings in support of freedom of speech and religion.
It was during that time that he married Liu Xia, a poet and artist.
In the statement he wrote for his trial, he described his love for her as "boundless".
"Dearest, with your love, I will calmly face the impending trial, with no regrets for my choices, and will look forward with hope to tomorrow," he wrote.
In 2010, while Liu was serving his fourth and final sentence, he was awarded the Nobel Peace Prize, which recognised his "long and non-violent struggle for fundamental human rights in China".
The award enraged China's government, which condemned it as a political farce. Within days, his wife was put under house arrest.
Liu's absence at the prize ceremony in Oslo was marked by an empty chair for him and another for his wife.
Albert Ho, who heads the Hong Kong Alliance organising protests in Liu's support, said China's efforts to erase Liu from people's memory would fail.
"Don't underestimate the power of the internet ... And don't underestimate the people," he said.
"People are not living in an open society in China, so you never know."
Source: Al Jazeera and news agencies