There is a very clear winner here - most frequently tagged "Portugal" on both Goodreads and LibraryThing by a long way, and the "Portugal"-tagged book owned by the most users on both systems by an event wider margin, it was published in 1995 and helped win its author the 1998 Nobel Prize for Literature. The only reservation I have about giving it the top spot is that the setting, a city where the entire population is suddenly afflicted with the physical disability of the title, is not explicitly identified as being in Portugal. But they eat chouriço, and the sequel is apparently explicitly set in Portugal, so I'm satisfied. The novel is:
Blindness / Ensaio sobre a cegueira, by José Saramago
If you object to that not being clearly set in Portugal, I can offer you an alternative, in a clear second place (ie well ahead of the rest) on all measures. Published in 1982, 47 years after the author died aged 47, it's a strange and fragmentary unfinished work, but one which is at least clearly based in Lisbon. It is:
The Book of Disquiet / Livro do Desassossego: Composto por Bernardo Soares, by Fernando Pessoa
Not a lot else to offer, I'm afraid; the other works of the first-named author above dominate international perceptions of Portuguese literature (even if none of the others is quite as popular as the second-named book above).