Castro bested more than 20 nominees including South Korean President Park Geun-Hye, UN Secretary General Ban Ki-moon, and the Shanghai Cooperation Organisation, a regional group led by Moscow and Beijing, to win this year's "Confucius Peace Prize", the state-run Global Times reported.
The Cuban revolutionary icon was selected by nine judges out of a group of 16 experts and scholars, the paper said.
The shadowy Confucius prize emerged in 2010, when it was suddenly announced by the panel two days before jailed Chinese dissident Liu Xiaobo was awarded the Nobel to Beijing's anger, sparking speculation it was set up with the government's guidance.
"While in office, Castro didn't resort to violence or force to settle disputes in international relations, especially with the United States," the Global Times wrote.
"After his retirement, he has been actively meeting with leaders and groups from all over the world and has made important contributions to emphasising the need to eliminate nuclear war," it added.
Since leaving office in 2006 during a nearly fatal health crisis, Castro, 88, has spent his free time writing books and articles for the official press in Cuba, which now is led by his younger brother Raul.
Organisers of the prize denied links to the government, but the award's executive chairman Liu Haofeng told AFP later that it had been set up by an association overseen by China's culture ministry.
In a move that added to the confusion surrounding the prize, the following year the ministry ordered organisers to scrap it, but the academics pressed ahead with their plans and gave it to Russian President Vladimir Putin.