Earlier known as the Orange Prize, the UK's most prestigious annual book award is given for the best novel of the year written by a woman of any nationality in the English language.
While Lahiri has been chosen for her Man Booker shortlisted novel "The Lowland", Bhutto has been included for her work "The Shadow of the Crescent Moon". The list also includes "The Luminaries" by last year's Man Booker winner Eleanor Catton of New Zealand, US writer Rachel Kushner's "The Flamethrowers" and Aussie writer Evie Wyld's "All the Birds, Singing".
Pakistani author Fatima Bhutto has also been named in the list
Launched in 1996, the Prize celebrates excellence, originality and accessibility in women's writing from throughout the world.
The winner receives a cheque for 30,000 pounds and a limited edition bronze known as a 'Bessie', created by the artist Grizel Niven. Both are anonymously endowed. Set in Kolkata and Rhode Island in the US, "The Lowland" is about the lives of brothers Subhash and Udayan, their choices and their fate.
"The Shadow of the Crescent Moon" is the debut work of Bhutto. It chronicles the lives of three brothers and two women in a small town in the troubled tribal region of Waziristan near the Afghanistan border.