“An additional submarine will be delivered to Israel,” Thomas de Maiziere told a joint press conference with Barak, adding that Germany would subsidise the cost although he did not say by how much.
A German government source in November said Germany would foot a third of the bill, amounting to a maximum of 135 million euros ($178 million).
Germany reconsidered the sale of the submarine to Israel in the wake of tensions over Jewish settlement construction in the occupied Palestinian territories, Israeli newspaper Yediot Aharonot reported in October.
But Berlin then agreed to sell Israel the vessel after the Jewish state released millions of dollars in customs duties to the Palestinian Authority, Israeli army radio reported two months later.
The Israeli navy currently has three German-made Dolphin-class submarines, two of which were bought after the 1991 Gulf War.
Two others are under construction at Kiel shipyard and are due for delivery in 2012. An option for a sixth was also included in the contract.
Media reports have said the submarines can carry nuclear warheads and have an operating range of 4,500 kilometres (2,800 miles).