The 16-year-old Pakistani, who last year was shot in the head by the Taliban in her native Swat Valley after speaking out in favour of education for girls, is the youngest person ever to win the Sakharov prize.
"This award gives me encouragement to continue my cause," Malala said Wednesday, adding that she dedicated it to "the unsung heroes of Pakistan and people all over the world who are fighting for their basic human rights."
Malala received praise for her continued efforts to promote education, with European Parliament President Martin Schulz calling her "a survivor, a hero, an exceptional young woman."
However, her popularity is not universal. Her book "I am Malala" was banned in Pakistani private schools this month by education officials who said it didn't show enough respect for Islam.
In her acceptance speech, Malala focused on the 57 million children worldwide who were being deprived of schooling.
She urged the European Parliament to look beyond Europe, telling them there was still hope for children suffering from the effects of poverty, abuse, forced marriages, trafficking and terrorism.
"There is hope because you are all here; united to help these innocent children, they do not want an iPhone, an Xbox, a Playstation or chocolates. They just want a book and a pen," she said.
Wednesday's ceremony in Strasbourg, France, which also marked the 25th anniversary of the award, was attended by 21 prize winners from previous years.
The 50,000 euro ($67,500) award is named after Soviet dissident Andrei Sakharov, with past winners including Nelson Mandela and former UN secretary general Kofi Annan.
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