The prize, worth DM5,000 (pounds 1,850), is awarded yearly by Aachen, Charlemagne's birthplace. Mr Blair will receive it in May in the cathedral where Charlemagne is buried and where Holy Roman emperors were crowned.
For European statesmen, it is a great honour. Previous winners include Winston Churchill, Edward Heath and Helmut Kohl. Last year's winner was Bronislaw Geremek, Poland's Foreign Minister.
In its citation the committee of prominent Aachen burghers praises Mr Blair for his "active and constructive" role in European integration. "With the change of government in 1997, Britain's attitude to Europe gained a new dynamism. Tony Blair, who already in 1975 voted for Europe in the referendum, is the embodiment of this new and intensive turn towards Europe. From the beginning of his office Tony Blair clearly voiced the Europe- friendly attitude of his government."
He is also praised for the "Third Way", the modernising zeal of his administration, and for bridging the gap between liberalism and socialism.