The Sydney Peace Foundation awarded the prize to Ms Ashrawi on Friday but she will only receive it when she visits New South Wales in November.
"The Sydney Peace Foundation recognised Dr Ashrawi for her commitment to human rights, to the peace process in the Middle East, and for her courage in speaking against oppression, against corruption and for justice," read a statement from the foundation.
Ashrawi served as the official spokeswoman of the Palestinian negotiating delegation in talks with Israel between 1991 and 1993.
After Yasser Arafat's Palestinian Authority was created, she served as minister of higher eduction from 1996 to 1998.
She also founded the Palestinian Initiative for the Promotion of Global Dialogue and Democracy (MIFTAH) in 1998.
The Sydney Peace Prize is the only Australian international peace award.
"The Sydney Peace Foundation recognised Dr Ashrawi for her courage in speaking against oppression, against corruption and for justice"
Sydney Peace Foundation
Recent recipients of the prize include Nobel Prize winner Archbishop Desmond Tutu, East Timorese leader Xanana Gusmao, and UN High Commissioner for Human Rights Mary Robinson.
The Sydney Peace Foundation is a non-profit organisation attached to the University of Sydney.