Formerly a leading UN special representative for children and armed conflict, Mr Otunnu negotiated a Security Council resolution to establish a monitoring and reporting system for children caught up in armed conflicts.
The resolution identified 54 groups on every continent who exploit children as soldiers or sex slaves.
"Two of the suspects in the failed terrorist attacks in London on July 27 are children of war, from Somalia and Eritrea,” he said.
As a student in his native Uganda, Mr Otunnu was a member of the resistance against the regime of former dictator Idi Amin.
Winning scholarships at Oxford University and Harvard Law School, he went on to become the Ugandan Foreign Minister and permanent representative to the United Nations.
He will receive the Prize at a gala dinner at the University of Sydney tonight.
Previous winners of the war include East Timorese president Xanana Gusmao and Indian novelist Arundhati Roy.