"I hope that this award that I am getting tonight is going to be good news for small film makers from small countries because it looks like you don't necessarily need a big budget and a lot of stars"
Cristian Mungiu, director
The winning film tells the story of Otilia and Gabita, student friends who are exploited when one goes to have an illegal abortion.
But despite being set in the colourless landscape of socialist Romania, the story underlines the lengths to which friends go to save each other.
Mungiu welcomed the international attention the award would bring to his and other small-scale productions.
"I hope that this award that I am getting tonight is going to be good news for small-film makers from small countries because it looks like you don't necessarily need a big budget and a lot of stars," he said.
The film, one of 22 competing for the award, beat a series of highly acclaimed pictures for the top prize as the world's biggest film festival celebrated its 60th anniversary.
This year's Cannes line-up was praised as one of the strongest in recent years, where many small budget productions succeeded by telling dark stories while weaving into them portrayals of great humanity.
|This year's best film in Cannes|
was a small-scale production [AP]
Julian Schnabel won best director for The Diving Bell and the Butterfly based on the true story of Jean-Dominique Bauby, a French journalist who was paralysed by a stroke and yet managed to write a book using one eyelid to communicate.
"I didn't see it as depressing," Schnabel said. "I think Jean-Dominique Bauby was saying to all of us: 'I was dead when I had my body. I was blind. It took the harsh light of disaster to show me my true nature'."
Other entries included Russian art house director Alexander Sokurov's Alexandra and three US films - No Country For Old Men by the Coen Brothers, Zodiac by David Fincher and Gus Van Sant's Paranoid Park.
Best screenplay was awarded to German-Turkish director and writer Fatih Akin for The Edge of Heaven, a cross-border story of love and reconciliation.
Best actor was Konstantin Lavronenko, who played the male lead in The Banishment, another film that features abortion, by Andrei Zvyagintsev, a Russian film-maker.