Born in Kerteminde on Funen, Larsen studied art at the Free School in Copenhagen under Kristian Zahrtmann in the 1880s. There he met other Painters from Funen, notably Fritz Syberg and Peter Hansen, both from the southern port of Faaborg, and the Funish Painters' group was born. They went on to create an art colony that influenced many Danish and Swedish artists and brought them success. Larsen's home, Møllebakken in Kerteminde, became the gathering place in summer months for many Painters, particularly younger artists from Zahrtmann's school.

Their ideal was to paint outdoors, not just sketching but painting in all kinds of weather. Their paintings have a freshness and Energy not previously seen, except in sketches. Once they became successful, they were attacked by symbolist artists for being "farmer painters" in a newspaper debate in 1907. This only brought the Funish group more sympathy, especially from a group of authors working from the provinces in Jutland. Their chief spokesman was Johannes V. Jensen, who won the Nobel Prize for Literature in 1930.

In 1910, a canning manufacturer, Mads Rasmussen, decided to start a museum for Funish Art next to his canning factory in Faaborg. He created the Faaborg Museum, which still exists, and gave the Funish Painters a boost, both by making their works available to a broad public and by supporting them financially. Kristian Zahrtmann exhorted all his students to paint in Italy; now some of them could afford to do so, and the Syberg and Hansen families enjoyed extended stays there. Larsen and his Artist wife, Alhed Warberg, built a large studio and travelled mostly in Scandinavia.