Salman Rushdie, The Satanic Verses (1988).
The Satanic Verses is probably the most famous "blasphemous" book of the latter-half of the Twentieth Century. The controversy over the novel made its author, Salman Rushdie, famous well beyond the literary world. The novel is very much in the "magical realism" vein, as divine/supernatural phenomena and quirky coincidences occur frequently, sometimes noticed and remarked upon by everyday people and sometimes not. At its core the story is about two men born in India, one who takes on the characteristics of the Archangel Gabriel and the other the characteristics of Satan. Themes include the effects of colonization (specifically, England on India) both in terms of society and in terms of the inner psyche of the colonized.
Although most of the book is set in the modern age, the chapters that created such a furor are set during the lifetime of Muhammed. The founder of Islam is given the name "Mahound" in the book, which is a contemptuous name deriving from Medieval Christian literature. The "Satanic Verses" of the title refers to a real-world historical controversy (one apparently rarely given credibility among theologians today): did Muhammed once proclaim that there were more Gods than Allah in order to derive temporary worldly benefits, and then recant once his power base was more secure? The "Satanic Verses", in other words, are verses from the Koran that can be viewed as having a pagan influence. In Rushdie's story, Mahound recites the verses after a spiritual revelation from a being whom he thinks is Gabriel; but after Mahound changes his mind, he says that the supposed divine revelations were a trick sent by the devil. The implication here and elsewhere, then, is that Mahound is simply stating as "divine revelation" whatever happens to be convenient at the time. In one passage, for example, Mahound's scribe (responsible for writing down Mahound's words in what would become the Koran) changes the words and even writes down the opposite out of spite, and Mahound doesn't even notice. The story can thus be read to call into question the entire validity of the Koran.
I lack the training to comment on the book's literary, historical, or theological merits. Purely as a novel, I found it moderately interesting but not exceptional. If nothing else, The Satanic Verses is a testament to the fact that, even in the age of television and computers, literature can still shake the world.