By Felicia Schwartz

TEL AVIV -- Israel awarded the contract for a major infrastructure project to a local company, avoiding getting entangled in the escalating tensions between the U.S. and China.

Several companies, including one from China, had bid to build what is slated to be the world's largest desalination plant near an Israeli military base that is also used by the U.S.

On Tuesday, Israel's finance ministry said the contract for the Sorek 2 desalination plant went to Israeli company IDE Technologies. Rival bids for the private-public partnership project included one from an affiliate of the Hong Kong-based CK Hutchison Holdings Ltd.

"The Israeli offer was better by a significant margin from the other competitors, including the Chinese, who did get to the final stage," said Energy Minister Yuval Steinitz on national broadcast radio Kan.

Israeli officials said the decision on the plant, Israel's sixth, came down to cost. The Israeli bid would save consumers more than $900 million over the lifetime of the plant, they said.

The move comes as the Trump administration presses Israel and other allies to take a tougher line on Chinese investments, particularly in areas involving a security risk. Secretary of State Mike Pompeo in Israel earlier in May warned of the possibility of such risks with regards to the Chinese bid for the plant project.

The facility -- to be built near the Palmachim air base -- will provide 200 million cubic meters of water a year, about one-fifth of household and municipal water consumed in Israel annually, according to the finance ministry.

U.S. officials are increasingly concerned about Chinese companies' involvement in critical infrastructure projects, and this project also raised security concerns because the air base hosts U.S. missile tests.

The decision prevents an immediate clash between the close allies. American officials have also voiced concerns about Chinese companies' participation in other Israeli infrastructure projects, including the construction and operation of a new terminal by the Haifa port.

Last year, Israel set up an interagency government body to oversee sensitive commercial deals involving foreign companies, akin to the U.S.'s Committee on Foreign Investment. The panel is in the early stages of operation.

While Israel remains receptive to American concerns, it also sees China as an important market for Israeli companies and products as well as a source of foreign investment. China is Israel's third-largest trading partner, according to a report by the Institute for National Security Studies at Tel Aviv University.

In a sign of its balancing act, Israel hasn't echoed the U.S. in its criticism of China's handling of the coronavirus pandemic.

"What we're seeing now is due to the coronavirus tensions are escalating between the U.S. and China, it's exacerbating all the trends here," said Shira Efron, a visiting fellow at the Institute for National Security Studies, who wrote a recent RAND report about Chinese investment in Israeli technology and infrastructure.

IDE declined to comment on its winning bid for the desalination plant. Hutchinson didn't immediately respond to a request for comment. China's embassy in Israel has said the Hutchinson bid was made in accordance with Israeli law.

Dov Lieber

contributed to this article.

Write to Felicia Schwartz at Felicia.Schwartz@wsj.com 



  Corrections and Amplifications


  This article was corrected at 10:48 a.m. ET because it misspelled the name of Shira Efron, a visiting fellow at the Institute for National Security Studies at Tel Aviv University.