Melbourne author and illustrator Shaun Tan has won a prestigious award for children's literature.

Tan has been awarded Sweden's Astrid Lindgren Memorial Award, which is named after the Swedish creator of Pippi Longstocking.

The prize amounts to 5 million kroner ($765,000), making it the world's richest for the genre.

Tan also won an Oscar in February for best animated short film for The Lost Thing.

He says the latest award is an unexpected bonus.

"If you've been labouring over something for a long enough time, you're so focused on the creative side of things that all the practical concerns become somewhat secondary to that, they're just a supporting framework," he said.

"This is fantastic because it means that ultimately I'll have more time to do my own creative work by having that financial assistance."

Tan has illustrated more than 20 books, including The Rabbits (1998), The Red Tree (2001), The Arrival (2006) and Tales from Outer Suburbia (2008).

Astrid Lindgren award jury praised Tan as a "masterly visual storyteller, pointing the way ahead to new possibilities for picture books."

"His pictorial worlds constitute a separate universe where nothing is self-evident and anything is possible."

Australian author Sonya Hartnett won the Astrid Lindgren Memorial Award in 2008.