The US pop star, 25, is said to have been offered the top award after she visited victims of the terror attack in hospital and organised a charity gig.
But even though the singer was honoured to be asked by a committee, she felt it was too soon to accept in the wake of the atrocity that killed 23 people including suicide bomber Salman Abedi.
Grande was physically unharmed in the 22 May 2017 attack but has suffered from post-traumatic stress disorder.
The Sun quoted a source as saying: "Ariana was flattered but said it was too soon. She explained she was still grieving. So were scores of families.
"She feared some affected might see it as insensitive. The committee wrote to her but she politely said no."
According to the paper, another source added: "She was deeply moved and honoured. She didn't decline it as such but explained it was not the right time to accept."
Sky News has contacted her representatives for a comment.
Last month, the singer described the Manchester Arena terror attack as something "that seems impossible to fully recover from".
In the fourth episode of her docu-series, Ariana Grande: Dangerous Woman Diaries, the star shared a letter about the attack.
The letter said: "I'm writing to you this 22 February 2018. It's been eight months since the attack at our show at the Manchester Arena.
"It's impossible to know where to start or to know what to say about this part. 22 May 2017 will leave me speechless and filled with questions for the rest of my life.
"Music is an escape. Music is the safest thing I've ever known.
"When something so opposite and so poisonous takes place in your world that is supposed to be everything but that... it is shocking and heartbreaking in a way that seems impossible to fully recover from."
A couple of weeks after the atrocity, Grande set up the One Love Manchester benefit concert on 4 June which raised money for victims and their relatives.
The singer performed along with a number of stars including Take That, Little Mix, Justin Bieber, and Liam Gallagher.
© Sky News 2018