Detection of hepatitis B Virus surface antigen (HBsAg) is an established method for diagnosing both acute and chronic hepatitis B virus (HBV) infection. In addition to enzyme immunoassays (EIAs), rapid diagnostic tests (RDTs) are available for the detection of HBsAg in resource-poor settings. However, the available RDTs have inadequate sensitivity and therefore are not suitable for diagnosis of patients with low levels of HBsAg and for blood screening. To provide a high-sensitivity RDT, we developed a lateral flow immunoassay (LFIA) for HBsAg utilizing upconverting nanoparticle (UCNP) reporter. The UCNP-LFIA can use whole blood, serum, or plasma and the results can be read in 30 min using a reader device. When compared with a commercial conventional visually read LFIA, the developed UCNP-LFIA had a Limit of Detection (LoD) of 0.1 IU HBsAg/ml in spiked serum, whereas the LoD of the conventional LFIA was 3.2 IU HBsAg/ml. The developed UCNP-LFIA fulfills the WHO criterion for blood screening (LoD ≤ 0.13 IU HBsAg/ml) in terms of LoD. The UCNP-LFIA and conventional LFIA were evaluated with well-characterized sample panels. The UCNP-LFIA detected 20/24 HBsAg-positive samples within the HBsAg Performance Panel and 8/10 samples within the Mixed Titer Performance Panel, whereas the conventional LFIA detected 8/24 and 4/10 samples in these panels, respectively. The performance of the assays was further evaluated with HBsAg-positive (n = 108) and HBsAg-negative (n = 315) patient samples. In comparison with a central laboratory test, UCNP-LFIA showed 95.4% (95% CI: 89.5–98.5%) sensitivity whereas sensitivity of the conventional LFIA was 87.7% (95%CI: 79.9–93.3%).