British-US scientist John O’Keefe and married couple May-Britt and Edvard Moser from Norway have won the Nobel Prize in Physiology or Medicine for discovering the brain’s “inner GPS”.

The “place cells” and “grid cells” they discovered make it possible for our brains to work out where we are .

The Nobel Assembly said the discoveries show how the brain creates “a map of the space surrounding us and how we can navigate our way through a complex environment.” O’Keefe, of University College London, discovered the first component of this positioning system in 1971 when he found that a certain type of nerve cell was always activated when a rat was at a certain place in a room.

Thirty-four years later May-Britt and Edvard Moser, of the Norwegian University of Science and Technology in Trondheim, identified another type of nerve cell that generates a co-ordinate system for precise path-finding, the assembly said.

O’Keefe was awarded half of the 8m Swedish krona (around £700,000) prize while the other two winners receive a quarter each.

John O’Keefe laughs as he is interviewed in an office he uses at the University College London Photograph: Matt Dunham/AP

Andrew King, professor of neurophysiology at Oxford university, said the discovery that neurons in the hippocampus possess “place fields” that fire when an animal is in a particular part of its environment had “revolutionised our understanding of how the brain knows where we are and is able to navigate within our surroundings”.

The Nobel assembly said that knowledge about the brain’s positioning system may “help us understand the mechanism underpinning the devastating spatial memory loss” that affects people with Alzheimer’s disease.

John Stein, a professor of physiology at Oxford University, said: “This is great news and well deserved. I remember how great was the scoffing in the early 1970s when John first described ‘place cells’ … ‘Bound to be an artifact’, ‘He clearly underestimates rats’ sense of smell’, were typical reactions. Now, like so many ideas that were at first highly controversial, people say ‘Well that’s obvious!’”

“May-Britt and Edvard’s research lies at the very heart of the cognitive-neuroscience enterprise,” Stanislas Dehaene, who studies consciousness at the Collège de France in Paris told Nature. “They are trying to understand the neural codes for cognition – and so unite biology with computer science and even philosophy.”

May-Britt Moser is the 11th woman to win the medicine Nobel since the award began in 1901.

The Nobel awards in physics, chemistry, literature and peace will be announced later this week. The economics prize will be announced next Monday.