France's Albert Fert and Germany's Peter Gruenberg won the 2007 Nobel Prize for physics on Tuesday for a breakthrough in nanotechnology that revolutionized data storage and led to gadgets such as laptops and iPods.

The 10-million Swedish crown ($1.54 million) prize, awarded by The Royal Swedish Academy of Sciences, recognized the pair's discovery of giant magnetoresistance, which enables scientists to push huge amounts of data into ever-smaller spaces.

"It is thanks to this technology that it has been possible to miniaturize hard disks so radically in recent years," the academy said in a statement.

Giant magnetoresistance -- GMR for short -- works through a large electrical response to a tiny magnetic input.

When atoms are laid down on a hard disk in ultra-thin layers, they interact differently than when spread out more. This makes it possible to pack more data on disks.

Numerous handheld devices -- from mobile phones to music players -- owe their existence to the discovery.

Surrounded by journalists in Paris soon after learning of his award, the 69-year-old Fert started chatting with some youngsters near the CNRS research centre he co-founded.

"You like physics?" he asked, telling them he had just won the Nobel prize. "If you are able to listen to music on your MP3 player, it is a bit thanks to what I've done."

Fert and Gruenberg, 68, figured out how to stack nanometre-thin layers of magnetic and non-magnetic atoms to produce the GMR effect.

"The story of the GMR effect is a very good demonstration of how a totally unexpected scientific discovery can give rise to completely new technologies and commercial products," the Nobel committee wrote.

It works because of a property called spin. Electrons -- the charged particles within atoms -- "spin" in different directions under various circumstances, producing the changes in resistance that are used to store data.

"It is the thing that has made iPods possible and anything that requires lots of data storage, like YouTube," said Chris Marrows, a physicist at Leeds University who specializes in a branch of technology known as spintronics.

Fert and Gruenberg each made the discovery independently of the other. They shared the 2007 Japan Prize for their work.

As Nobel physics laureates, Fert and Gruenberg join the ranks of some of the greatest names in science, such as Albert Einstein, Marie Curie, Niels Bohr and Wilhelm Rontgen.

Rontgen won the first prize in 1901 for his discovery of X-rays.

This was the second of this year's crop of Nobel prizes, which are handed out annually for achievements in science, literature, economics and peace.

All but one of the prizes were established in the will of 19th century dynamite millionaire Alfred Nobel. The economics award was established by Sweden's central bank in 1968.

(Additional reporting by Maggie Fox in Washington, Simon Johnson, Sarah Edmonds, and Emma Bengtsson in Stockholm, and Michael Kahn in London and Thierry Leveque in Paris)