The project will be led by WIS and the Israel Space Agency (ISA) at the state's Ministry of Science and Technology.
Weighing just 160 kg, the unique satellite -- named "Ultrasat" -- is planned to be built over the next four years by the Israel Aerospace Industries (IAI) and the Israeli defence electronics company Elbit Systems, Xinhua news agency reported.
The project is expected to cost some $70 million over the four years of detailed planning, construction and launch.
The telescope will operate in a range of light that is normally invisible to humans (ultraviolet) with a very large field of view.
"This unique configuration will help us answer some of the big questions in astrophysics," said WIS Professor Eli Waxman, Ultrasat's principle investigator.
WIS President Daniel Zajfman said: "A small country - and a small satellite - can produce big results, even in exploring the wonders of distant outer space."
Avi Blasberger, ISA Director, said that "the project will put Israel, its scientists and engineers, at the forefront of a global movement to explore the Universe with small, affordable satellites".