The 23-year-old from Aberdeenshire beat Ola Vigen Hattestad and Finn Hågen Krogh, Norway's two best hopes for a cross-country Olympic gold at the Sochi games.
"If there's one race to win apart from the World Cup, it's the Norwegian Championship," Musgrave said after his victory.
"It is time people forgot about "Eddie the Eagle" and heard about Andrew Young and Andrew Musgrave instead," he added, referring to Michael "Eddie the Eagle" Edwards, the British ski jumper who caused much laughter at the 1988 Vancouver Olympics.
As a foreigner, Musgrave was not eligible for a medal in the race, meaning the gold went to Hattestad and the gold to Krogh.
But this was little consolation to Norway's elite skiers.
Norway's state broadcaster NRK led its news with Musgrave's victory, under the headline, "This hurts for the Norwegians."
The Nettavisen newspaper paraphrased the famous television commentary after Norway's 1981 football win over England, telling the country's coach: "Arild Monsen, you guys took a hell of a beating."
Musgrave, who lived previously in Alaska and Aberdeenshire, has been training in Norway for the last few years, where he competes as a member of Team LeasePlan Go.
Britain's head coach Roy Young said that the victory was "the best result I know of," for a British cross-country skier.
"This is an amazing win for Andrew," he said. "It is a demolition job on some world-class racers who had everything to gain as it was effectively a Norwegian selection race for the Olympics."
Monsen, while grudgingly conceding that Musgrave was a "worthy winner", downplayed his chances in Sochi.
"I will be surprised if he takes a medal in the Olympics. From what we've seen so far, we should beat him," he said.