The record boasts an impressive tracklist curated from the band's previous EPs - Bewitched (1985), LBGPEP2 (1986), and This is This (1988).
The women of Look Blue Go Purple are recognised as defining voices in the second wave of Flying Nun's Dunedin sound.
Members Francisca Griffin, Norma O'Malley, Lesley Paris, Denise Roughan and Kath Webster said they were "stoked" at news of their upcoming award.
"We were a band of five good friends, in Dunedin, 40 years ago - to have people still appreciating our music after all this time is great," the band said in a statement.
"The 1991 compilation is pretty much the sum of our professional recording output. We treasure that time in our lives; being in a band together was special. Now, having the spotlight put on the contribution Look Blue Go Purple made in that seminal era is affirming, humbling and frankly wonderful.
"The news is like a ray of sunshine on a ho-hum, overcast sort of day."
The IMNZ Classic Record award is among six awards to be presented at the Taite Music Awards on April 23.
Two RNZ staff, music content producer Tony Stamp and TAHI podcast presenter and producer So'omalo Iteni Schwalger, have been nominated for the Outstanding Music Journalist Award along with film makers Cushla Dillon and Andrew Moore.
The three albums voted as finalists for Best Independent Debut are Get That Shot - Jujulips, Saturn Return - Soft Plastics, and Lone Rider - D.C Maxwell.
