The group said the new plant in central Israel will produce 150 million cubic meters of water each year, or about a fifth of household water consumption in Israel, and will be finished in 2013.
SDL is 51% owned by IDE Technologies and 49% by Hutchison Water, a unit of Hong Kong group Hutchison Whampoa.
Israeli conglomerate Delek Group owns 50% of IDE, with the other half owned by fertilizer maker Israel Chemicals.
The group said in a statement the plant will produce water at a cost of around NIS 2.01 (56 cents) per cubic meter.
Currently, the largest reverse osmosis plant – a technology that requires less energy to desalinate sea water and is friendlier to the environment than thermal-based systems – is in the northern Israeli city of Hadera. It produces 127 million cubic meters of water annually.