Spatial transcriptomics has advanced our understanding of tissue biology by enabling sequencing while preserving spatial coordinates. In sequencing-based spatial technologies, each measured spot typically consists of multiple cells. Deconvolution algorithms are required to decipher the cell-type distribution at each spot. Existing spot deconvolution algorithms for spatial transcriptomics often neglect spatial coordinates and lack scalability as datasets get larger. We introduce SpatialPrompt, a spatially aware and scalable method for spot deconvolution as well as domain identification for spatial transcriptomics. Our method integrates gene expression, spatial location, and single-cell RNA sequencing (scRNA-seq) reference data to infer cell-type proportions of spatial spots accurately. At the core, SpatialPrompt uses non-negative ridge regression and an iterative approach inspired by graph neural network (GNN) to capture the local microenvironment information in the spatial data. Quantitative assessments on the human prefrontal cortex dataset demonstrated the superior performance of our tool for spot deconvolution and domain identification. Additionally, SpatialPrompt accurately decipher the spatial niches of the mouse cortex and the hippocampus regions that are generated from different protocols. Furthermore, consistent spot deconvolution prediction from multiple references on the mouse kidney spatial dataset showed the impressive robustness of the tool. In response to this, SpatialPromptDB database is developed to provide compatible scRNA-seq references with cell-type annotations for seamless integration. In terms of scalability, SpatialPrompt is the only method performing spot deconvolution and clustering in less than 2 minutes for large spatial datasets with 50,000 spots. SpatialPrompt tool along with the SpatialPromptDB database are publicly available as open source software for large-scale spatial transcriptomics analysis (https://github.com/swainasish/SpatialPrompt).