The 31-year-old blogger, who was arrested in 2012, is an outspoken advocate of free speech whose public flogging in January triggered international outrage when he was subjected to a first round of 50 lashes.
Announcing the award, parliament chief Martin Schulz called on Saudi King Salman to immediately release Badawi, denouncing his sentence as "brutal torture" and demanding that Riyadh live up to Europe's standards on human rights.
"This man has had... Imposed on him one of the most cruel penalities which can only be described as brutal torture," Schulz said. "I call on the Saudi king to immediately free him."
Badawi, who co-founded the Saudi Liberal Network Internet discussion group, was detained in 2012 on cyber crime charges.
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Like most Saudis, Badawi is a Sunni Muslim but his network had announced a "day of liberalism" and called for an end to the influence of religion on public life in the kingdom.
He was arrested and the website shut down on grounds it criticised Saudi Arabia's notorious religious police.
He was initially charged in 2013, and last year a Saudi court sentenced him to 1,000 lashes and 10 years in jail.
Citing an informed source, Haidar on Tuesday said Saudi authorities had "given the green light to the resumption of Raif Badawi's flogging", saying it would take place "soon" at the prison where he is being held. The information was posted on a website dedicated to her husband's plight.
The award was also hailed by the International Federation for Human Rights (FIDH) which said he had played a major role in promoting freedom of expression and attempting to foster public debate in Saudi Arabia.
Born on January 13, 1984, Badawi studied economics then went on to run an English-language and computer learning institute, says Haidar, who married him in 2001.
He eventually found his calling as a writer, focusing on free speech.