Officials in Wittenberg, eastern Germany nominated the jailed activists of Pussy Riot for the 2013 "Fearless Word" award in honour of the Protestant theologian Luther, who launched the Reformation there nearly 500 years ago.
Theologian and one-time East German dissident Friedrich Schorlemmer blasted the recommendation as an "outrage" and highly offensive to Christians.
"A Luther town should not honour blasphemy. The protest against the regime of (Russian President Vladimir) Putin as well as the close ties between the Church and politics in Russia are indeed justified," he told the daily Leipziger Volkszeitung.
"But they chose the wrong place for their provocation."
He added that the name of the band itself was scandalous. "You only have to translate it to the letter. Pussy Riot sounds offensive and indecent," he said.
The Lutheran Church's state commissioner for Reformation and Ecumemism in central Germany, Siegfried Kasparick, said Pussy Riot had trampled on the feelings of the faithful.
And the Wittenberg chapter of the Christian Democratic Union, the conservative party of Chancellor Angela Merkel, called for the town to withdraw the nomination.
However town mayor Eckhard Naumann, of the Social Democrats, defended the choice of Pussy Riot.
"We're sticking by our recommendation," he told public broadcaster Deutschlandradio Kultur.
He said that while he understood that some Christians might be offended by their demonstration, town officials "admired the young women's courage to stand by their protest, even under repression."
An alliance of 16 towns in which Martin Luther (1483-1546) lived or worked will award the Fearless Word prize in April 2013 in Eisleben, where the future monk was born.
The award, founded in 1996 and dedicated to Germans or foreigners "who risk hardship for brave action", carries a €10,000 ($12,860) cash prize.
A jury will decide among 16 nominees next month.
The editorial team at Russian muckraking newspaper Novaya Gazeta won the prize last year.
A Russian appeals court Wednesday ordered the release of one member of Pussy Riot after giving her a suspended term but ordered two others serve two years in a prison camp.
The trio were convicted for hooliganism motivated by religious hatred over their performance of an anti-Putin song at Moscow's main cathedral in February.