The 34-year-old singer whose original name is Park Jae-sang, rose to global fame after the music video of "Gangnam Style" featuring his horse-riding dance moves went viral on YouTube, attracting more than 600 million views.
He topped the coveted British Official Singles Chart and ranked second on the U.S. Billboard's Hot 100 Chart with the track. The video currently sits on No. 2 on YouTube's all-time list of most-watched videos, next to Justin Bieber's "Baby."
Psy will receive the Okgwan Order of Cultural Merit, the fourth highest honor on a level of five, for his contribution to increasing the world's awareness of Korean pop music and ensuing interest in Korea, the ministry said in a press release.
The 2012 list of medal winners also includes the director and stars of "Pieta," winner of the Golden Lion for best film at this year's Venice Film Festival, according to the ministry.
Director Kim Ki-duk will receive the Eungwan Order of Cultural Merit, the second highest, while the film's male and female leads, Lee Jung-jin and Jo Min-su will get the same honor as Psy, it said.
Among other winners are famous TV drama writer Kim Soo-hyeon, singer Song Chang-shik and TV actress Na Moon-hee.
The awards ceremony will be held on Nov. 19, the ministry said.