She is only the second female to win the top honour since the annual awards dinner was started by the Otago Sports Trust in 1990.
Commonwealth Games high jump gold medallist Tania Murray, the inaugural winner in 1990, was a special guest at the dinner to honour Shanks' achievement.
Shanks (26) had an outstanding year that culminated in her winning the world 3000m individual pursuit title.
The gold medal victory in Poland last March - in which she beat the Olympic silver medallist - was a significant milestone for Shanks, who slept in her rainbow jersey the night she was crowned world champion.
The world title was not her only top performance in the qualifying period, from April 1 last year to March 31.
She also rode in the silver medal-winning women's pursuit team at the world championships, finished fourth at the Beijing Olympics, won gold medals in two rounds of the UCI World Cup, and won the New Zealand individual pursuit title by a massive 10 seconds.
Earlier in the evening, Shanks was also named the Newstalk ZB Sportswoman of the Year for the third consecutive year.
Sport Otago chief executive John Brimble said Shanks "has had an amazing year thrilling us with her results from Beijing to achieving world champion status".
"Alison has been a model sportswoman and has shared her experience and enthusiasm with the people of Otago at schools and at community events.
"I am sure that there are even greater achievements in store for Alison. She is a deserving winner of the award."
New Zealand cricket team vice-captain and wicketkeeper Brendon McCullum won the Speight's Sportsman of the Year award.
The arrival of twenty/20 cricket has seen him explode on to the world scene and his astounding innings of 158 not out in the Indian Premier League grabbed headlines worldwide. It was form he brought to the Black Caps season, where he averaged 70 in twenty/20 internationals.
His dominating attitude to opening the batting in one-day internationals saw blazing performances that delighted coaches and fans alike. His contribution to Otago cricket makes his home-coming a crucial addition to our local cricket scene.
Wanaka-based Freeskier Jossi Wells (18) won the Otago Daily Times Class Act Junior Sportsperson of the Year award for the fourth consecutive year.
His impressive results in 2008 helped him to win the Emerging Talent Award at this year's Halberg Awards.
He was also the joint New Zealand snow sports athlete of the year and the 2009 Central Otago Sportsperson of the Year.
Last year he won gold medals at the Nippon Freeski Open, the King of the Mountain in the United States and at the world superpipe championships, and had four other top five results in open men's international competitions.
The Otago Volts cricket team retained the Aotea Electric Team of the Year award for its championship winning 2008-09 season.
It dominated the twenty/20 competition and its one-day form took it into the State Shield final.
Sports scientist and cycling coach Craig Palmer won the Air New Zealand Coach of the Year award.
He recognised the potential for Shanks to excel on a bike when she switched from netball four years ago and has been with her every step of her journey through the Olympics to becoming a world Champion.
Palmer also coaches Hayden Roulston, whose amazing comeback culminated in a silver medal at the Beijing Olympics, and he is the sports scientist for the New Zealand high performance cycling team, and his skills are helping a wide range of cyclists improve their results.
The guest speaker at last night's awards dinner was Mahe Drysdale, who won a bronze medal in the single sculls at the Beijing Olympics.
There were 500 guests at the dinner and the master of ceremonies was rugby and cricket commentator Steve Davie.
