Bishop Dr Munib Younan of Palestine, who's part of the Evangelical Lutheran Church, will receive the award from the Niwano Peace Foundation at a ceremony in Tokyo in July.
At the ceremony Bishop Younan will receive a medal and an undisclosed amount of prize money.
The awarding body praised Bishop Younan, also President of the Lutheran World Federation, for the way he "has devoted his life to building peace with justice in the Middle East and globally."
He "continues tirelessly in a self-sacrificing manner promoting dialogue and joint action between religions and over ethnic and national divisions," the body added.
The Niwano Peace Foundation was chartered in 1978.
Past winners of the prize include Catholic theologian Hans Kung and Brazilian Cardinal Paulo Evaristo Arns of Sao Paulo.