Fatullayev was sentenced to 8 1/2 years in prison in 2006 for publishing an article about the consequences of a possible U.S.-Iran military conflict that supposedly caused panic among diplomats and businesspeople in Baku.
However, Fatullayev is a friend and colleague of slain Azerbaijani journalist Elmar Huseynov and has accused the government of obstructing the investigation into Huseynov's 2005 murder.
"His only crime is his journalism," Nina Ognianova, CPJ's Europe and Central Asia program coordinator, was quoted in a CPJ press release as saying.
"He is being punished for doing a job that the government has not done: investigating the murder of his editor."
The other three International Press Freedom Awards went to Naziha Rejiba, editor of the Tunisian online journal "Kalima;" Mustafa Haji Abdinur, a correspondent for AFP and editor in chief of Radio Simba in Somalia; and J.S. Tissainayagam, who is serving a 20-year prison term in Sri Lanka on terrorism charges for his work documenting government human rights abuses.
The awards will be presented in New York on November 24.