An arts centre in Orkney has won one of the most prestigious prizes in Scottish architecture.

Last night, the Royal Incorporation of Architects in Scotland awarded its Best Building in Scotland award to the Pier Arts Centre.

Designed by Reiach and Hall architects, the building, a modern glass and zinc extension to two Orcadian buildings that date from the 18th century, won the £25,000 Andrew Doolan award, the richest in British architecture.

One of seven buildings shortlisted for the architecture award, the Stromness centre comprises a permanent gallery space housing a collection of British contemporary art.

Also shortlisted were Princess Gate, a housing development in Edinburgh designed by Malcolm Fraser Architects, Hazelwood School in Glasgow designed by Gordon Murray & Alan Dunlop Architects, the Maggie's Centre in Kirkcaldy designed by Zaha Hadid, Fettes College Sixth Form Centre & Residence in Edinburgh designed by Page and Park Architects, the Bridge Arts Centre in Glasgow designed by Gareth Hoskins Architects and the New Arts Faculty building for the University of St Andrews designed by Edinburgh-based Reiach and Hall.

The Orkney centre was established to provide a home for the art collection donated to the people of the island by the author, peace activist and philanthropist Margaret Gardiner, who lived from 1904 to 2005.

The older buildings on the site have housed the Pier Arts Centre since it opened in 1979, and the collection contains 116 works spanning the period from 1929 to the present day, focusing primarily on modernist art - recent acquisitions of work by internationally acclaimed contemporary artists including Sean Scully and Olafur Eliasson.

Douglas Read, the architect and member of the prize jury, said: "The jury had considerable debate in cutting the 20 entries down to the short-list of seven.

"That this should be so is a tribute to strength of Scottish architecture today.

"The jury was particularly impressed with The Pier Arts Centre because of the seemingly effortless way in which the new gallery has been settled in beside its neighbours as an integral part of the townscape."