Hagen, the party's influential former leader who is still a deputy representative in parliament, was chosen by the Progress Party in an internal vote on Wednesday.
But Hagen's role as a deputy representative to parliament compromises the Committee's neutrality, Ytterhorn said.
“[Hagen joining the committee] would place the Nobel Committee in a hopeless situation and the Committee will no longer be an independent institution,” Ytterhorn said to NRK of Hagen's nomination to the committee which chooses the annual Nobel Peace Prize winner.
“If Hagen is selected then the committee will be connected to the work of parliament,” she added.
The Committee's five members are appointed by the Norwegian Parliament, as stipulated by Alfred Nobel in his will.
Although rules prevent currently-serving MPs from sitting on the Nobel Committee, it is unclear whether these also apply to deputy members.
Ytterhorn was preferred to Hagen as the party's Committee representative in 2012, which the former leader at the time called a “humiliation”.
Hagen, who is known for his outspoken views, confirmed to news bureau NTB last month that he would be interested in the role on the committee, which selects the annual winner of the Nobel Peace Prize.
A former municipal councillor from Bergen, Ytterman was a member of parliament for the nationalist Progress Party from 1989 to 1993.
She did in fact attend parliament in a stand-in capacity in 2001 – after she began serving on the Nobel Committee – but told NRK she could not remember the overlap.
“I cannot remember that. But if that was the case, 2001 was the end of my parliamentary period and I was on the way out. Furthermore, I was a second deputy. But we must, in any case, deal with the issue that is relevant now,” she said, pointing out that Hagen is a first deputy and attends parliament more often than she did.
The final decision on who is selected to join the committee rests with Norway's Stortinget parliament.
Speaker Olemic Thommesen has summoned the selection committee for the decision, which includes the leaders of the largest parties in parliament, to discuss the issue.
Labour leader Jonas Gahr Støre has already expressed his scepticism over Hagen's nomination.
“It is difficult to have an independent institution whose members are sitting in parliament,” Thommesen told NRK.