The move had been widely expected after top bank officials in recent days expressed concern that faster economic growth in the region and increases in the money supply could lead to higher inflation.
Market watchers were debating not if, but by how much, the bank would raise the rate - by a quarter or half point. The half point rise moves the rates back to the level they were at in April, when the bank made its first rate cut to help stimulate weak European economies.
Analysts said a failure by the 11-month-old bank to act after dropping so many hints might have endangered the credibility it is still in the process of establishing.
The bank sets monetary policy for the 11 European Union members that on Jan. 1 adopted the euro. One of its primary duties is to keep inflation low.
Rate hikes help tame inflation by making the cost of borrowing more expensive.
The ECB's move follows an announcement earlier in the day by the Bank of England to raise its repo rate to 5.5 percent from 5.25 percent, in line with market expectations.
The ECB's other two key rates, which form the floor and ceiling for the money market - the overnight deposit rate and the marginal lending rate, were also raised by 0.5 percentage points, to 2 percent for the deposit rate and 4 percent for the overnight.
The bank's 17-member governing council debated a rate hike three weeks ago, but decided to await more data to back up fears of an inflation risk. ECB president Wim Duisenberg said then that the bank was prepared to raise rates once it sees further evidence of a strengthening European economy.
Ottmar Issing, the ECB's chief economist, fueled talk of a rate rise Friday when he said new data confirmed the growth trend. "Everything is showing in the direction of stronger activity,'' he said.
Duisenberg himself said in a newspaper interview this week that the ECB's inclination for higher rates is increasing, especially given recent growth in the money supply a key inflation indicator.
He also said he didn't think a rate rise wouldn't impede economic growth and efforts to bring down Europe's chronically high unemployment.
But others warned that a rate hike would endanger the recovery under way, especially in Europe's biggest economy, Germany, where growth has trailed the rest of the continent.