The Quadriga prize was established after German unification in 1990 to mark contributions to the spread of freedom and democracy.
The private award is little noticed outside Germany, until it emerged last week this year's prize is to go to Putin, which has drawn criticism from high quarters.
Green Party co-leader Cem Ozdemir quit the Quadriga award's board of trustees over the choice. "The Quadriga should go to people who have done a service to promoting democracy," he said in a statement. "I do not see Vladimir Putin among those ranks."
The government's human rights commissioner, Markus Loning, told "Der Spiegel" magazine the decision "devalues" the prize. "It's downright cynical to put Putin in the same group with Mikhail Gorbachev and Vaclav Havel," he said.
Unlike Gorbachev and Havel, both previous recipients of the prize, Putin has cracked down on democracy and individual freedoms in Russia since he became president in 2000. He abolished regional elections of governors in favor of Kremlin appointments, oversaw the state takeover of independent national media and sidelined liberal opposition parties, which no longer sit in parliament.
Putin stepped down to become prime minister in 2008, but most Russians believe he remains the country's supreme leader.
Named after a sculpture on Berlin's Brandenburg Gate and awarded on October 3, the national holiday celebrating unification, the Quadriga award is given to people considered role models "for and from Germany," and is "dedicated to all those whose courage tears down walls and whose commitment builds bridges."
The nonprofit organization that manages the prize said it decided to give the Quadriga prize to Putin for his "services to the reliability and stability of German-Russian relations." It said on July 12 it would not reverse its decision.
Human Rights Watch has also criticized the decision.
Putin -- who served as a KGB officer in East Germany in the 1980s -- retains close ties to Germany, which is Russia's biggest trade partner. Germany depends on Russia for 40 percent of its natural gas, crucial for maintaining the country's economic boom.
Putin was especially close to former Chancellor Gerhard Schroeder, who signed a deal to build a gas pipeline from Russia to Germany. Critics said it would boost Moscow's influence over Berlin because it uses its vast energy supplies as a foreign policy tool.
Schroeder drew widespread condemnation at home for taking a job as chairman of the consortium building the pipeline weeks after having stepped down.
-- Gregory Feifer