Finance Minister Ronnie Bar-On approved the creation of 17 new water and sewage corporations on Wednesday, which should provide services to 1.5 million additional people.
Another four municipalities received approval to join existing corporations.
The corporations - some government companies and some private - are meant to oversee the water and sewage systems, rather than the local authorities themselves.
While some corporations are under the authority of the municipality, the idea behind the 2001 law was to ensure that the funds from the sale of water would be reinvested in water and sewage infrastructure, rather than diverted to other municipal uses.
Twenty-eight corporations have been established to this point, serving 3.5 million people.