Irish debut author Colin Barrett has won the most lucrative prize in the world for a collection of short stories, the €25,000 Frank O'Connor international short story award.

Barrett beat writers including Lorrie Moore and AL Kennedy to win a prize that has been taken in the past by Haruki Murakami and Edna O'Brien. Judges said his collection, Young Skins, had "all the hallmarks of an instant classic".

Set among the lives of the young people of a fictional small Irish town – "the young do not number many here, but it is fair to say we have the run of the place," writes Barrett – Young Skins has already drawn stunning reviews. Chris Power called it "extraordinary" in the Guardian and compared Barrett to James Joyce. Frank O'Connor judge Alison MacLeod, the novelist, called Barrett's prose "exquisite but never rarefied" and said his characters, "the damaged, the tender-hearted and the reckless", are driven by utterly human experiences of longing".

"His stories are a thump to the heart, a mainline surge to the core. His vision is sharp, his wit is sly, and the stories in this collection come alive with that ineffable thing – soul," she said. "How dare a debut writer be this good?"

Barrett, who is 32, described himself as "knocked splendidly sideways by the news" of his win. The author worked for a mobile-phone provider in Dublin after graduating from University College Dublin, writing in his spare time before leaving his job to take an MA in creative writing. His stories were first published in Irish journal The Stinging Fly, which released his first collection in Ireland before it was picked up by major publishers Jonathan Cape in the UK, and Grove in the US.

"I'm from a small town in the west of Ireland. I left for Dublin as people do, and I suppose I wanted to take a look at that world, so isolated, to recreate it with its own games and hierarchy and rules of the jungle," he said of the collection. "It's its own discrete world, with its own rules, and I wanted to play with that, with the madcap energy and wildness that you get in these places, where people live in an enclosed environment."

Barrett said the collection was called Young Skins "because most of the protagonists are youngish, from their teens to their 20s. A couple are slightly older people – but they are sufficiently psychologically arrested to come under the description of young people."

The collection opens in the voice of the hungover Jimmy, who tells the reader: "My town is nowhere you have been, but you know its ilk. A roundabout off a national road, an industrial estate, a five-screen Cineplex, a century of pubs packed inside the square mile of the town's limits. The Atlantic is near; the gnarled jawbone of the coastline with its gull-infested promontories is near."

MacLeod was joined on the judging panel by the Irish poet Mathew Sweeney and the American novelist Manuel Gonzales. Named after Frank O'Connor – an author described by WB Yeats as the Irish Chekhov – the prize is in its 10th year, and was founded to encourage publishers to issue more collections of stories by individual authors.

Patrick Cotter, artistic director of the Munster Literature Centre, who selects the jury and acts as chair of the judging panel, said he was "delighted the award is going to a brilliant book, but as an Irishman I can take special pride that a book by a new, young, genius Irish writer can hold its own against the best in the world and win the award in this milestone year."

The prize is co-sponsored by Cork City Council and the school of English, University College Cork. It will be presented to Barrett in September at the end of the Cork International short story festival.