Jerzy Buzek, the parliament's president, Thursday in Strasbourg said Farinas, 48, would receive the 2010 Sakharov Prize.
"Guillermo Farinas was ready to sacrifice and risk his own health and life as a means of pressure to achieve change in Cuba," Buzek said. "I hope to hand over the award to him in person, here in Strasbourg, in December, which would be a tremendous moment for the European Parliament and for all Cuban prisoners of conscience."
A proponent of non-violence, Farinas has staged numerous hunger strikes to fight against censorship and for more democracy in Cuba.
A former soldier, journalist and a doctor of psychology, Farinas ended a 134-day hunger strike in July after the Cuban government agreed to free more than 50 political prisoners.
European parliamentarians backing the nomination called Farinas's struggle "a shining example for all defenders of freedom and democracy."
Farinas Thursday said he was accepting the award with modesty.
"Modesty because it's a prize that, even if given to me personally, I accept it on behalf of all Cuba's exiles, political prisoners and dissidents. As I speak they are fighting for a free and democratic Cuba," Farinas told the Euronews Web portal by phone from his home in Santa Clara, Cuba, where he is recovering from his most recent hunger strike. Doctors said he was near death when he ended it.
Named after late Soviet dissident Andrei Sakharov, the award carries a cash prize of around $70,000.
It's the third time the award goes to Cuba. In 2002, it was awarded to the Ladies in White group of women who took the streets to protest for their jailed husbands. Three years later, the prize was handed to Cuban dissident Oswaldo Sardinas.
Buzek said he hoped that the Ladies in White would also be able to collect their Sakharov Prize in person this December; they haven't been allowed to leave the country since their nomination.
The most recent nomination comes shortly before EU foreign ministers are due to discuss relations with Cuba next week.
Brussels has in the past urged Cuba to improve its human rights record and relations with the country have been icy.
Spain, the holder of the rotating EU presidency, is eager to normalize relations with Cuba, but smaller countries in Eastern Europe that have suffered under Communist rule are against softening up to Cuba.