The 35-year-old's book has sold about 30,000 copies.
Earlier this month, the NSW Supreme Court froze profits from the book under proceeds of crime laws.
Mr Hicks's legal team argues that law does not apply because his conviction by a US military commission at Guantanamo Bay was invalid.
A hearing into the matter has been adjourned until August 26.
Queensland's opposition arts spokesman Scott Emerson said the selection of the book seems strange.
He said if the book won, Mr Hicks could walk away with $15,000 and there was a chance the premier's prize could become part of the future legal action.
"Some people would seriously question whether a book by someone convicted of supporting terrorism should have been shortlisted," he said in a statement.
"This award hiccup risks becoming an embarrassment for the premier."
However, federal Attorney-General Robert McClelland said it was premature to discuss what would happen to the prize money.
"This book is one of several books nominated for the award. Accordingly, its speculative to comment on any potential prize money," he said in a statement.
"Under the Proceeds of Crime Act, literary proceeds include any benefit that a person derives from the commercial exploitation of his or her notoriety resulting from the commission of an indictable offence.
"At the end of the day, it's for the court to determine what constitutes a literary proceed of crime.
"I'm unable to provide any guidance on the books literary worth as I've not read it and I don't plan to."
-AAP
