One in four Israelis was living under the poverty line in 2010, annual figures from the National Insurance Institute showed, although the numbers showed an improvement since 2009.
The report, published on Thursday, said 1.77 million people, or 24.4 per cent of the population, were living below the poverty line, among them 837,000 children.
The statistics showed a slight improvement from 2009 when 25 per cent of the population lived in poverty, with the number of children affected falling to 35.3 per cent, down from 36.3 per cent a year earlier.
In terms of families, the figures showed 433,000 family units -- or 19.8 per cent -- were living in poverty, which was a slight improvement on the 2009 figure of 20.5 per cent.
The improvement in 2010 was attributed to a reduction in the unemployment rate and job growth, which has since slowed as a result of the global economic crisis.
The most impoverished social groups in Israel are the ultra-Orthodox Jews and the country's Arab Israeli minority, which numbers around 20 per cent of the country's population of some 7.8 million people.
Among these groups, which both traditionally have large families, one in every two families was living below the poverty line, the report said.
At a news conference to launch the report on Thursday, Social Affairs Minister Moshe Kahlon said the slight improvement did not alter the overall picture of poverty in Israel, which he described as "grim."
"Despite the decline in poverty in 2010, the differences in the prevalence of poverty from one year to the next show no change in the grim picture of poverty in Israel: one fifth of families and one third of children in Israel are poor," he said in remarks quoted by the business website Globes.
"That is why I call on the government to strongly intervene in the fight against poverty and to reduce it," he said.
Israel has one of the highest poverty rates among members of the Organisation for Economic Cooperation and Development (OECD), the club of 33 rich nations which it joined in September 2010.
In terms of income equality, Israel has one of the largest gaps between rich and poor in the OECD, ranking alongside the United States, Mexico and Chile.