The New Delhi-based Centre for Science and Environment, led by Sunita Narain, was cited for its work in promoting effective water management along with improved human rights, democracy and health.
The award was announced on Tuesday.
In its citation, the prize committee praised CSE for its "successful recovery of old and generation of new knowledge on water management, a community-based sustainable integrated resource management under gender equity, a courageous stand against undemocratic, top down bureaucratic resource control, an efficient use of a free press, and an independent judiciary to meet these goals."
The group will collect the prize from King Carl XVI Gustaf in Sweden.
The Stockholm Water Prize is awarded annually to individuals and institutions for making a substantial contribution to the preservation, enhancement or availability of the world's water resources.
The reward came the same day that the United Nations marked World Water Day.
The global body said that more than 1.1 billion people around the world lack safe water and more than 2.4 billion have no access to sanitation, leading to more than three million deaths annually.
CSE "lobbied successfully for rainwater harvesting to be an accepted, important element in India's water strategy (and) spawned a rediscovery of this practical, traditional and inexpensive technique ..."
In giving the award to Narain, the Stockholm Water Foundation said that it was honouring the way CSE had "lobbied successfully for rainwater harvesting to be an accepted, important element in India's water strategy (and) spawned a rediscovery of this practical, traditional and inexpensive technique ... to help alleviate pressure on India's inefficient, centralised water system."
While receiving the prize, Narain said that her group had worked to improve water management in India and elsewhere to ensure access.
First awarded in 1991, the prize has been awarded annually to mark achievements in water science management and awareness. It was founded by several companies, including Fujitsu Siemens, General Motors Corp, Swedish Railways and the Water Environment Federation.