Android Studio: Plugin with id 'android-library' not found

Instruct Gradle to download Android plugin from Maven Central repository.

You do it by pasting the following code at the beginning of the Gradle build file:

buildscript {
    repositories {
        mavenCentral()
    }
    dependencies {
        classpath 'com.android.tools.build:gradle:1.1.1'
    }
}

Replace version string 1.0.+ with the latest version. Released versions of Gradle plugin can be found in official Maven Repository or on MVNRepository artifact search.

Just for the record (took me quite a while) before Grzegorzs answer worked for me I had to install "android support repository" through the SDK Manager!

Install it and add the following code above apply plugin: 'android-library' in the build.gradle of actionbarsherlock folder!

buildscript {
    repositories {
        mavenCentral()
    }
    dependencies {
        classpath 'com.android.tools.build:gradle:1.0.+'
    }
}

Use

apply plugin: 'com.android.library'

to convert an app module to a library module. More info here: https://developer.android.com/studio/projects/android-library.html