Gathered on the Jordanian bank of the Dead Sea, a group of Jordanian and Israeli officials signed the deal in attendance of representatives from Washington and the UN's World Bank.
The project aims at providing potable water to Jordan, Israel and the West Bank through transferring Red Sea water to the Dead Sea, where a desalination plant would eventually be built in Aqaba on Jordan's Red Sea coast.
Thursday's agreement is the extension of a memorandum of understanding signed by Jordan, Israel and the Palestinian Authority in Washington in late 2013 regarding the project, which aims at replenishing the shrinking Dead Sea and providing potable water for areas around it threatened with drought.
"The project's cost is estimated at $900 million," Jordanian Irrigation Ministry spokesman Omar Salama told The Anadolu Agency.
Salama said that Jordan and Israel, along with the U.S. and the World Bank, would jointly fund the project.
Jordan's Irrigation Minister Hazem al-Nasser has said in a statement that his government would begin issuing tenders so the project's execution would begin within this year.
Jordan's Hashemite monarchy has normalized relations with the self-proclaimed Jewish state since the signing of U.S.-sponsored peace accord in 1994.