A Tel Aviv district court ruled that the class action suit will represent the car owners as well as the general public who were exposed to higher pollution levels, according to a court spokesperson and court documents.
Volkswagen was found to have hidden excessive levels of toxic diesel emissions from its cars in 2015, a scandal that led to a management rout and a series of regulatory probes and lawsuits, many of which are taking years to settle.
The company has said about 11 million cars worldwide were fitted with software that cheated diesel emissions tests designed to limit nitrogen oxide (NOx) car fumes.
Volkswagen said it had no immediate comment on the ruling.
The Israeli court ruling did not include the damages being sought and Michael Bach, one of the lawyers who brought the suit, said they are still tallying the number of car owners affected in Israel and calculating the environmental cost.
Volkswagen has so far spent more than 32 billion euros in vehicle refits, fines and legal costs. It has reached legal settlements, including in the United States and Britain.
(Reporting by Ari Rabinovitch; Editing by Alexander Smith)