Qatari Amir Shaikh Hamad bin Khalifa Al Thani authorised the funding on Tuesday after Israeli-Arab lawmaker Ahmed Tibi met senior Qatari officials and members of the energy-rich Gulf state's Olympic committee in Doha.
Gulf states have previously donated generously to Palestinian cities and towns, but neglected ethnic-Arab towns within Israel.
Qatar's donation will be used to build the 13,000-capacity Doha Stadium in the northern town of Sakhnin for the Bnei Sakhnin football team.
Qatari officials confirmed that Tibi had secured the donation pledge, but refused to disclose the amount.
Tibi said talks on providing funds for building the stadium began five months ago, during which he met several Qatari officials and showed them maps and documents related to the plans.
Engineers from the Qatari Olympic Committee later visited Sakhnin.
"This is the largest financial support that Sakhnin has ever received, or any others in the Arab sector, from any outside source," Tibi said.
"We very much appreciate ... the readiness to listen and positively react to our request especially since Sakhnin suffers from unequal treatment and policy, and we are trying to bridge the gap with assistance from the Arab world," he added.