The 59-year-old novelist, poet, screenplay writer and translator was chosen "for the literary renewal he has carried out by uniting the best of North American and European traditions," said Victor Garcia de la Concha, president of the prize organizers' committee.
"With his exploration of new areas of reality, Auster has been able to attract young readers by giving an aesthetically valuable testimony of the individual and collective problems of our times."
Auster was born in Newark, N.J. After graduating from Columbia University, he lived in France where he translated Mallarme, Sartre and other writers.
He gained fame for his detective story series, "The New York Trilogy," in which he deals with existential issues and the search for identity. Auster is also the author of "The Music of Chance" and "The Book of Illusions."
The Prince of Asturias awards are also given in the fields of social sciences, scientific research, communications and humanities, international cooperation, public service and sports.
The prize for literature was the fifth announced so far this year.
The awards are presented each fall in the northern Spanish city of Oviedo, capital of the Asturias region. They carry a cash award of about $62,000 and a sculpture by Catalan artist Joan Miro.
Brazilian writer Nelida Pinon won the literature prize last year.
By Ciaran Giles