Muti, currently the music director of the Chicago Symphony Orchestra, "is recognised for his extraodinary contributions in opera and concert, as well as his enormous influence in the music world both on and off the stage," the jury said.
According to organisers, the Birgit Nilsson prize -- which the singer established herself before dying in 2005 -- is "the largest ever given in the world of classical music."
Muti has previously served as the music director of the Philharmonia Orchestra in London, at the Philadelphia Orchestra, at Milan's renowned La Scala.
He has also conducted the Berlin Philharmonic, Bavarian Radio Symphony, New York Philharmonic and Vienna Philharmonic orchestras.
"I was deeply touched by the jury's accolade, all the more so given my profound admiration for this unique and extraordinary artist, both as an incomparable musician and a great interpreter," Muti was quoted as saying.
The Birgit Nilsson Prize is given out every two or three years for outstanding achievements to a currently active singer or conductor.
Wednesday's was only the second time the prize was awarded. In 2009, it went to Spanish tenor Placido Domingo, whom Nilsson had picked herself for the award.
Nilsson died on December 25, 2005 at the age of 87.
Her most famous role was that of Isolde in Richard Wagner's opera "Tristan und Isolde", with which she took La Scala by storm in 1956 and established her credentials as one of the 20th century's great Wagnerian sopranos.
Nilsson made her last public appearance in 1984 and published her autobiography "La Nilsson" in 1995.
Muti will receive his award at an October 13 ceremony attended by Sweden's King Carl XVI Gustaf and Queen Silvia.