A collection of short stories by the American writer George Saunders was on Monday praised as truly original and "absolutely of the moment" as it was named the inaugural winner of the UK's newest literary prize.

Saunders, a former Guardian columnist, became the first winner of the £40,000 Folio prize, an award created by people in the books industry who felt frustrated by what they see as the shortcomings of the Man Booker.

Announcing the winner in central London, the chair of judges – the poet Lavinia Greenlaw – said Saunders' stories in his book Tenth of December were both artful and profound.

"Darkly playful, they take us to the edge of some of the most difficult questions of our time and force us to consider what lies behind and beyond them."

She described Saunders' work as "unflinching, delightful, adventurous, compassionate" and added: "He is a true original whose work is absolutely of the moment. We have no doubt that these stories will prove only more essential in years to come."

Accepting the award, Saunders said fiction was about developing our ability to be sympathetic to others. "I think in a time like ours, where so much of the public discourse tells us that we are antagonistic, that we're separate, fiction is a wonderful way to remind ourselves that actually that's a lie."

Saunders said the win was a complete surprise – "I was raised Catholic so I have low self-esteem" – but that it may help more than his bank balance. "Embarrassingly, whenever I get something successful I sit up a little straighter and write a little better."

Welcoming the new prize, Saunders said prizes were an important way of raising writers' profiles, of making fiction "a bigger deal". He added: "Anything that can make literature seem powerful is good."

After the Nobel prize given to Alice Munro, Saunders was asked if short stories were finally getting their due. "It seems like a nice moment but I've been writing stories since the 1970s and it's like when the women's magazines say 'red is back' and it had never gone."

The Folio prize was founded by Andrew Kidd, managing director of the literary agents Aitken Alexander Associates.

He praised the five inaugural judges, saying: "In the winner, George Saunders' Tenth of December, they have recognised one of the great writers of our age and one of the undisputed masters of his form.

"It's a brilliant choice which boldly affirms the aims of the prize: to celebrate the most perfectly realised and thrilling storytelling of our time."

The prize first emerged from the Booker controversy of 2011, when judges caused uproar at some breakfast tables by stressing the importance of readability and of books that "zip along". Coupled with the fact that the Booker then excluded American writers – that changes this year – there was a strong feeling that there was a gap in the prize landscape: that a prize to reward literary achievement regardless of form, genre or the author's country of origin was needed.

It is also distinctive in that the judges will always be writers and critics themselves, drawn from an academy that has been created and now has 187 members.

The award was presented at an informal gathering in central London – a conscious contrast to the black tie, sit-down dinner for the Booker.

Toby Hartwell, managing director of the Folio Society, the prize's sponsor, said Saunders was an exceptional first winner.

He said: "Every one of the authors shortlisted for the prize has proved that great fiction writing is in rude health.

"They have also abundantly demonstrated that literature can be taken in new and exciting directions and that has to be good for readers everywhere."

Saunders, 55, is acknowledged as one of the finest short story writers and his work appears regularly in GQ and the New Yorker. For a time he filed a weekly column for Guardian Weekend magazine called American Psyche. Formerly a geophysical engineer, he teaches creative writing at Syracuse University, New York.

The stories in Tenth of December – one just two pages long – tackle disturbing subjects including rape and abduction. But they are moving and insightful and contain memorable laugh-out-loud moments.

He has legions of fans and his victory will be welcomed in many quarters.

Jonathan Ruppin, web editor of Foyles, said of the win: "Saunders is one of the mercurial masters of the short story that Britain's disinterest in short-form fiction has prevented us from championing.

"These stories are satire at its most brutal, fiercely funny but also bitter about a dystopian future that already seems to be coming to pass. He's a deserved recipient, up there with [Kurt] Vonnegut."

Of the eight shortlisted authors, only one was British: 85-year-old Jane Gardam, nominated for the final book in her Old Filth trilogy, Last Friends.

The other shortlisted books were: Red Doc by poet Anne Carson; Schroder by Amity Gaige; Benediction by Kent Haruf; The Flamethrowers by Rachel Kushner; A Girl is a Half-Formed Thing by Eimear McBride; and A Naked Singularity by Sergio de la Pava.

The dominance of Americans has prompted debate. The English literature academic David Brauner told the Guardian last week that he believed there was a widening gulf, that American fiction was "much more exciting and diverse and vibrant than British fiction".

Further evidence for that thesis was provided by the 20-strong longlist for the newly named Baileys women's prize for fiction, which featured only four British writers. The next question to be answered is: what works will the newly unshackled Booker prize judges alight on?

The other judges in Greenlaw's team of five were Michael Chabon, Sarah Hall, Nam Le and Pankaj Mishra.