Britain will not guarantee Assange's safe passage.
Coverage from the Guardian of Manchester, UK:
"Ecuador grants WikiLeaks founder Julian Assange political asylum Foreign Office 'disappointed' at announcement from Quito"
Julian Assange, the WikiLeaks founder, has been granted political asylum by Ecuador after taking refuge in the country's embassy in London.
The announcement will increase tensions between the UK and the South American country, which has been warned that the situation could have "serious implications" for diplomatic relations.
Assange sought sanctuary in the embassy in Knightsbridge in an effort to avoid deportation to Sweden, where he faces sexual assault charges.
Ecuadorian ministers have accused the UK of threatening to attack the embassy to seize Assange after it emerged that a 1987 law could allow the revocation of a building's diplomatic status if the foreign power occupying it "ceases to use land for the purposes of its mission or exclusively for the purposes of a consular post".
Under international law, diplomatic posts are considered the territory of the foreign nation.
The Foreign Office has said the decision on Assange's application for political asylum would not affect the UK's legal obligation to extradite him to Sweden.
The asylum decision was announced by the foreign affairs minister, Ricardo Patino, in the Ecuadorian capital Quito.
The news was seen live by Assange and embassy staff in a link to a press conference from Quito.
Patino said the Ecuadorian government had conducted lengthy diplomatic talks with the UK, Swedish and US governments.
None could give the guarantees about Assange's future that the South American country was seeking and had shown "no willingness" to negotiate on the issue.
US authorities were specifically asked if they had any intention to seek Mr Assange's extradition so they could start legal proceedings against him and what maximum penalty he could face.
"The response from the United States has been that it cannot offer any guarantees. With these precedents in mind the Ecuadorian government, loyal to its tradition to protect those who seek refuge with us and in our diplomatic mission, have decided to grant diplomatic asylum to Mr Assange."
Patino called for Assange to be guaranteed safe passage to leave the embassy but the Foreign Office insisted this would not be offered.
The minister said: "We trust that the United Kingdom will offer, as soon as possible, the guarantee for the safe passage for this asylum of Mr Assange and that they would respect those international agreements that they have signed in the past and that they have always respected."
He hoped the "friendship" with the UK would "remain intact".
"We share the respect for the same values of human rights, democracy and peace which are only possible once fundamental human rights are respected," he added.
A Foreign Office spokesman said the Government was "disappointed" by Patino's statement and stressed that the UK had a "binding obligation" to extradite Assange.