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"It's really hard to believe that this dream has come true which didn't come true for such a long time," Diao said as he accepted the trophy, fighting back tears.
It was the first Chinese film to win in Berlin since the unconventional love story "Tuya De Hunshi" (Tuya's Marriage) by Wang Quan'an brought home the gold.
"Black Coal, Thin Ice" is set in the late 1990s in the frosty reaches of northern China and its murder mystery plot is told through enigmatic flashbacks. It is Diao's third feature film.
Liao said he put on 20 kilogrammes (44 pounds) to play the alcoholic suspended police officer who falls hard for a mysterious murder suspect (Gwei Lun Mei).
He said he had celebrated his 40th birthday on Friday in Berlin.
"I think this was the most wonderful present you could give me," he said.
The Berlinale, Europe's first major film festival of the year, gave its best actress prize to Japan's Haru Kuroki for her role as a discreet housemaid in wartime Tokyo in Yoji Yamada's "The Little House" (Chiisai Ouchi).
"I will take this happiness and joy for winning the prize back to Japan," Kuroki said, wearing an elegant kimono.
The second of three Chinese films in competition in Berlin, "Blind Massage" (Tui Na) featuring a cast made up in part of amateur blind actors, captured a Silver Bear prize for outstanding artistic contribution for cinematographer Zeng Jian.
American films shared the glory, with Wes Anderson's historical caper "The Grand Budapest Hotel" offering a nostalgic look back at a Europe lost to war claiming the runner-up Silver Bear grand jury prize.
US actress Greta Gerwig, a member of the jury, read out a statement from Anderson who was not in Berlin for the awards.
"This Silver Bear is the first both full-scale and genuinely metallic prize I have ever received from a film festival so I feel particularly honoured, moved and indeed thrilled to accept it," he wrote.
The picture starring Ralph Fiennes had opened the Berlinale on February 6.
- Stylistic tour-de-force -
Texas filmmaker Richard Linklater, who shot his innovative coming-of-age drama "Boyhood" over more than a decade with the same actors and was widely tipped to take the Golden Bear, won best director.
"This says best director but I want to think of it as best ensemble," said Linklater, clutching the trophy.
Best screenplay went to the German siblings Dietrich and Anna Brueggemann for their wrenching drama "Stations of the Cross" (Kreuzweg) about a teenager who makes the ultimate sacrifice for her fundamentalist Catholic family.
Veteran French director Alain Resnais clinched the Alfred Bauer Prize for work of particular innovation for his play-within-a-film "Life of Riley" (Aimer, boire et chanter).
A nine-member jury led by US producer James Schamus ("Brokeback Mountain") handed out the prizes at a gala ceremony in the German capital.
"Black Coal, Thin Ice" divided audiences in Berlin but won critical praise.
Movie news website Indiewire noted buzz about the picture had been strong ahead of its screening "on the possibility of the film becoming that whitest of whales: a crossover Chinese-language international hit".
Industry magazine The Hollywood Reporter hailed it as "a salute to the classic Hollywood film noir, an exciting stylistic tour-de-force" but questioned its commercial prospects.
Film business bible Variety called it a "bleak but powerful, carefully controlled detective thriller in which - as with all the best noirs - there are no real heroes or villains, only various states of compromise".
The 11-day festival wraps up Sunday with screenings of its most popular features from a lineup of more than 400 movies.
Berlinale director Dieter Kosslick announced earlier that the event had had sold a record 330,000 tickets this year.
On Thursday British director Ken Loach picked up an honorary Golden Bear for his life's work.
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It was the first Chinese film to win in Berlin since the unconventional love story "Tuya De Hunshi" (Tuya's Marriage) by Wang Quan'an brought home the gold.
"Black Coal, Thin Ice" is set in the late 1990s in the frosty reaches of northern China and its murder mystery plot is told through enigmatic flashbacks. It is Diao's third feature film.
Liao said he put on 20 kilogrammes (44 pounds) to play the alcoholic suspended police officer who falls hard for a mysterious murder suspect (Gwei Lun Mei).
He said he had celebrated his 40th birthday on Friday in Berlin.
"I think this was the most wonderful present you could give me," he said.
The Berlinale, Europe's first major film festival of the year, gave its best actress prize to Japan's Haru Kuroki for her role as a discreet housemaid in wartime Tokyo in Yoji Yamada's "The Little House" (Chiisai Ouchi).
"I will take this happiness and joy for winning the prize back to Japan," Kuroki said, wearing an elegant kimono.
The second of three Chinese films in competition in Berlin, "Blind Massage" (Tui Na) featuring a cast made up in part of amateur blind actors, captured a Silver Bear prize for outstanding artistic contribution for cinematographer Zeng Jian.
American films shared the glory, with Wes Anderson's historical caper "The Grand Budapest Hotel" offering a nostalgic look back at a Europe lost to war claiming the runner-up Silver Bear grand jury prize.
US actress Greta Gerwig, a member of the jury, read out a statement from Anderson who was not in Berlin for the awards.
"This Silver Bear is the first both full-scale and genuinely metallic prize I have ever received from a film festival so I feel particularly honoured, moved and indeed thrilled to accept it," he wrote.
The picture starring Ralph Fiennes had opened the Berlinale on February 6.
- Stylistic tour-de-force -
Texas filmmaker Richard Linklater, who shot his innovative coming-of-age drama "Boyhood" over more than a decade with the same actors and was widely tipped to take the Golden Bear, won best director.
"This says best director but I want to think of it as best ensemble," said Linklater, clutching the trophy.
Best screenplay went to the German siblings Dietrich and Anna Brueggemann for their wrenching drama "Stations of the Cross" (Kreuzweg) about a teenager who makes the ultimate sacrifice for her fundamentalist Catholic family.
Veteran French director Alain Resnais clinched the Alfred Bauer Prize for work of particular innovation for his play-within-a-film "Life of Riley" (Aimer, boire et chanter).
A nine-member jury led by US producer James Schamus ("Brokeback Mountain") handed out the prizes at a gala ceremony in the German capital.
"Black Coal, Thin Ice" divided audiences in Berlin but won critical praise.
Movie news website Indiewire noted buzz about the picture had been strong ahead of its screening "on the possibility of the film becoming that whitest of whales: a crossover Chinese-language international hit".
Industry magazine The Hollywood Reporter hailed it as "a salute to the classic Hollywood film noir, an exciting stylistic tour-de-force" but questioned its commercial prospects.
Film business bible Variety called it a "bleak but powerful, carefully controlled detective thriller in which - as with all the best noirs - there are no real heroes or villains, only various states of compromise".
The 11-day festival wraps up Sunday with screenings of its most popular features from a lineup of more than 400 movies.
Berlinale director Dieter Kosslick announced earlier that the event had had sold a record 330,000 tickets this year.
On Thursday British director Ken Loach picked up an honorary Golden Bear for his life's work.
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