Peel, whose radio career spanned 40 years, was on a working holiday in the city of Cuzco with his wife Sheila when he suffered a heart attack.
He was BBC Radio 1's longest-serving DJ and in recent years had also presented Home Truths on Radio 4.
Radio 1 controller Andy Parfitt said Peel's contribution to modern music and culture was "immeasurable".
'Hugely missed'
He added: "John Peel was a broadcasting legend. I am deeply saddened by his death as are all who work at Radio 1. "John's influence has towered over the development of popular music for nearly four decades.
"His commitment and passion for new music only grew stronger over the years. In fact, when I last saw him he was engaged in a lively debate with his fellow DJs over the state of new music today
"He will be hugely missed."
Mr Parfitt told Radio 1's Newsbeat that Peel had been on a holiday of a lifetime when he died.
'Irreplaceable'
He added: "He had gone on holiday with Sheila to a place where he had always wanted to go."
"He was one of the giants of radio and will be missed, not just by everyone at the BBC, but by millions of listeners of all ages."
Tony Blair's spokesman said the Prime Minister was "genuinely saddened by the news".
He added: "His view is that he was a unique voice in British broadcasting and used that voice to unearth new talent and different subjects and make them accessible to a much wider audience."
Radio 1 DJ Jo Whiley, who presented coverage of the Glastonbury Festival with Peel, paid tribute to her colleague and close friend.
She said: "John was simply one of my favourite men in the whole world - as a music fan and presenter he was simply an inspiration."
Mainstream music
Peel was born in Heswall, near Liverpool, and after completing his military service in Britain in 1962, went to the US where he began working for a radio station in Dallas.
| It was because of him I got to hear some of the most obscure but influential music I ever heard James Dean Bradfield, Manic Street Preachers |
He joined Radio 1 at the launch in 1967, and established himself with the late night programme Top Gear.
He became one of the first DJs to give exposure to punk, reggae and hip-hop, before they crossed over into the mainstream.
Peel's programme built up a reputation around the world, and in addition to his Radio 1 programme, he could also be heard on the BBC's World Service.
James Dean Bradfield, lead singer of the Manic Street Preachers, paid tribute to Peel.
He told BBC News Online: "It was because of him I got to hear some of the most obscure but influential music I ever heard.
"He was a lifeline to hearing music I would never have heard otherwise. The service he provided was getting to hear music that you couldn't buy in Cardiff. He was a portal to a whole new world."
| He always had his finger on the pulse of the music industry Michael Bradley, Undertones |
"The world is going to be a poorer place with his sudden departure. I will miss him deeply," he added.
"I want to send my heartfelt sympathy to his lovely family. John's memory will never be forgotten because he had the spirit of music in him."
Favourite record
After announcing Peel's death on Radio 1, the station played his favourite song, Teenage Kicks, by the Undertones.
Michael Bradley, bass player for the Undertones, spoke of his shock on learning of Peel's death.
He said: "He was a very funny, very warm man and we will always be grateful for what he did for The Undertones.
"Personally, I find it incredible what he did for the band and we always got huge pride out of the fact that he said Teenage Kicks was his favourite single.
"He always had his finger on the pulse of the music industry and the fact that Radio 1 played the Undertones, the White Stripes and the Strokes today showed just how relevant he remained throughout his career."
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