Sheeran won British male solo artist and album of the year for "x", while 22-year-old Londoner Smith won British breakthrough act and global success award after his debut album "In the Lonely Hour" won worldwide acclaim.
"This is incredible, I really didn't expect this," Smith told the crowd, while Sheeran called it a great night for British music that defied those who said "selling records is dead".
As pop veteran Madonna took to the stage flanked by muscled male dancers wearing horns, her long black cape got caught and dragged her down a set of stage steps in a dramatic fall.
But the 56-year-old gamely shrugged off the mishap, removing the cape and giving a stomping performance of "Living for Love" -- a retort to a menopause joke about her from comic Jimmy Carr that drew jeers earlier in the night.
The ceremony kicked off with a pitch-perfect rendition of "Blank Space" by country music sweetheart turned pop sensation Taylor Swift, who won the international female solo artist award.
"I've been coming to England and playing shows for eight years and this is my first award. I'm so happy," Swift said as she accepted the prize -- Britain's version of a Grammy.
She paid tribute to Sheeran, saying "Honestly I know I wouldn't be up here if it wasn't for one of my best friends who took me to pubs and taught me to make a good cup of tea and taught me everything I know about the UK."
Smith, who had led nominations on the night, gave a soulful performance of his runaway hit "Stay with Me", which was named Song of the Year at the Grammys in Los Angeles earlier this month.
Rap star Kanye West was welcomed to the stage by his wife, television personality Kim Kardashian wearing a net-fronted black outfit, before he performed in front of a billowing tower of flame.
But the showcase of his new track "All Day" caused confusion among television viewers at home as much of it was muted in an attempt by broadcaster ITV to silence its repeated use of the N-word.
British television actress Hetti Bywater responded by tweeting "Kanye, can you please stop my TV from muting and just stop with the offensive language, cheers".
Pop veterans Take That also performed at the event, along with rock duo Royal Blood, who revealed they had formed in 2013 just for fun as they accepted the award for British group.
Best British single went to Mark Ronson for "Uptown Funk", and the DJ paid tribute to the hit's Hawaiian singer Bruno Mars as he accepted the gong, telling the crowd "I don't get to stand up on these stages that often".
London singer Paloma Faith made an emotional speech as she accepted the award for British female solo artist, saying it had taken 14 years to achieve and dedicating it to "all the underdogs and all the grafters that work bloody hard".
World-conquering British-Irish boy band One Direction scooped British artist video of the year for "You & I", filmed on a windswept ocean pier, a prize accepted by producer Simon Cowell on their behalf.
US singer-songwriter Pharrell Williams' hit "Happy" rang out as he was named international male solo artist, and he sent his thanks in a video message telling the crowd it "means the world".
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