Awarded by the American University in Cairo, Egypt, the prize went to Alia Mamdouh for her fifth novel, Al-Mahbubat (The Loved Ones), first published by al-Saqi Books in 2003.
The audience at the award ceremony on Saturday, which marked Nobel laureate Mahfouz's 93rd birthday, was visibly moved when Mamdouh spoke of the plight of the Iraqi people.
"This special award is for a whole Iraqi generation, broken beyond the imagination of those who set out to break it," she said.
"It is an award for all Iraqi women writers, alone and disillusioned by dictatorship in the past and occupation and extremism in the present.
"Today, Iraqi cities are being annihilated as if there is no ethical contradiction between submission to silence and coercion into sullied speech."
The winning tale tells of Suhaila, a comatose middle-aged Iraqi exile who comes to life through the memories of her son, Nadir, and her friends who have come from all over the world to be by her side.
Fragments of conversation, diaries and letters portray Suhaila's joi de vivre, and love of wine and poetry despite suffering an abusive husband, exile and separation from her son.
Born in Iraq, Mamdouh studied psychology at the University of Mustansiriya in Iraq before entering journalism and publishing.
After working as the editor-in-chief for Al-Rashid magazine and spending two years as editor of Al-Fikr Al-Muasir magazine, she left her homeland in 1982 living first in Beirut, then Palestine, London and, finally, Paris.
Her previous publications include two collections of short stories (Iftitahiya lil Dahik, Prelude to Laughter, 1971, and Hawamish al Sayyida Ba, Notes to Mrs B, 1973), and four novels Layla wa Al-Dhib (Laila and the Wolf, 1981), Habbat Al-Naftalin (Mothballs, 1986), Al-Walah (Passion, 1993) and Al-Ghulama (The Maiden, 2000).
Naguib Mahfouz won international
fame with The Cairo Trilogy
Established in 1996, the Mahfouz prize aims to promote contemporary Arab literature and its translation. Previous winners include the Moroccan novelist Bensalem Himmich and Edward El-Kharrat.
A translation of Al-Mahbubat is due to be published in 2005 in Cairo, New York and London.