The 20-year-old, who has been linked with a January move to the Etihad Stadium, has been awarded the prestigious prize which goes to the year's best under-21 player in Europe
The 20-year-old has impressed in Spain and Europe with a string of scintillating performances this season, and earlier this month Goal.com exclusively revealed that Premier League champions Manchester City are willing to meet his £17.5 million release clause in January.
He was selected by a panel of 30 journalists working for the most influential publications, with representatives from 20 nations.
Isco becomes the 10th player to receive the award after an initial 40 players were selected from the European football scene.
"I'm overjoyed. It is a wonderful thing. I see the past winners and it almost makes me shiver, names of the highest prestige, like Messi," he told reporters.
"This Golden Boy [award] will be an incentive for me to become a real star of international football, like those who have gone before me."
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"When I read that I was one of three candidates for the title a I dribbled a little, I thought it was a joke," Isco added. "When I knew that El Shaarawy and Courtois were the other candidates, I didn't expect to win."
Previous winners of the accolade include the likes of Lionel Messi, Cesc Fabregas, Sergio Aguero and Wayne Rooney, while the 2011 winner was Borussia Dortmund's Mario Gotze who picked up the award aged 19.
Isco has been in excellent form for his club so far this season, scoring six times and assisting on another eight occasions in his 25 appearances.
And he says he is now focusing on establishing his place in the national side, but played down comparisons to fellow Spaniard Andres Iniesta.
"So far I have been called up once for the Spain national team. I want to convince coach Del Bosque to call me up as soon as possible. Wearing the Roja jersey is a dream for all Spaniards.
"The Spanish press say that I am Iniesta’s heir, but a comparison is wrong because Don Andrés is one of the strongest midfielders in the world, our World Cup hero, the player who deserves to win this year’s Ballon d'Or. However, my idol is Ronaldinho."
Isco, who will be presented with the award before kick off in Saturday's clash with Real Madrid, also said he was happy to stay at Malaga for the foreseeable future.
"I’m fine here," he explained. "I have a contract until 2016 and a buy-out clause of €21m (£17.5m), for the moment.
"I am 20 years old and that does not mean that I should leave soon. It is a decision that has to be carefully considered with the club, with my agent José Seguí and with my family."
Malaga currently lie in fourth place just five points behind Jose Mourinho's men after amassing 28 points from 16 games.