The panel of judges for the Stirling Prize called the Museum of Modern Literature, located in Marbach am Neckar in southern Germany, "a small Acropolis."
The economic efficiency of the "simultaneously rich and restrained" building, designed by Britain's David Chipperfield Architects, was particularly praised. It was completed in 2006 on a relatively small budget of 12 million euros ($17 million).
"This is a remarkably low-cost building in a high-cost country," said the panel of judges.
More than 1,300 pieces, including letters, documents and personal items from famous 20th century authors, are on exhibit at the museum. Friedrich Nietzsche's death mask and original manuscripts by Franz Kafka and Alfred Doblin are among the highlights.
Dresden's renovated train station, the Casa da Musica in Porto, Portugal, and the America's Cup building in Valencia, Spain were also in the running for this year's Stirling Prize.