Yunus, nicknamed "banker to the poor", and Grameen Bank's representative Mosammat Taslima Begum received gold medals and diplomas at the ceremony at Oslo's City Hall to applause from about 1,000 guests, including King Harald and Queen Sonja of Norway.


The prize created by the Swedish philanthropist Alfred Nobel comes with a cheque for $1.47 million to be shared by the winners.


The laureates were announced in October.


Yunus and Grameen Bank won the peace award - which has traditionally gone to statesmen, peace brokers, human rights advocates and humanitarian organisations - "for their efforts to create economic and social development from below".


Their work lending small sums to help start businesses from basket weaving to chicken farming has pioneered a movement known as "microcredit" which has spread around the globe. The bank is owned by its clients and counts thousands of beggars among them.


Yunus, an economist and head of the bank, said the link between a peaceful world and fight against poverty was clear.


Millennium goal


Yunus said the new millennium began with a dream to cut poverty in half by 2015 as agreed by world leaders in the UN millennium goals in 2000.


"But then came September 11 and the Iraq war, and suddenly the world became derailed from the pursuit of this dream, with the attention of world leaders shifting from the war on poverty to the war on terrorism," he said.


"I believe terrorism cannot be won over by military action."


Yunus said the US has spent over $530 billion on the war in Iraq.


He said terrorism had to be condemned "in the strongest possible language" and that the world must tackle its roots.


"Putting resources into improving the lives of the poor is a better strategy than spending it on guns.


"Poverty is the absence of all human rights."


Yunus began the microcredit movement with a $27 loan to a group of 42 villagers who had fallen victim to extortionate money-lenders.