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The selection was announced on NBC's "Today" show.
The magazine cited dissent across the Middle East that has spread to Europe and the United States, and says these protesters are reshaping global politics.
Last year, Facebook founder and CEO Mark Zuckerberg got the honor.
Time's "Person of the Year" is the person or thing that has most influenced the culture and the news during the past year for good or for ill. Federal Reserve Chairman Ben Bernanke received the honour in 2009. The 2008 winner was then-President-elect Barack Obama.
Other previous winners have included Bono, President George W. Bush, and Amazon.com CEO and founder Jeff Bezos.
Time said it is recognizing protesters because they are "redefining people power" around the world.