"General Eitan Dangot, coordinator of government activities in the (Palestinian) territories, accepted a West Bank residence request for Mohammed Assaf," the defence ministry official said.
"This will allow his to travel abroad much more easily than from the Gaza Strip," the official explained.
Israel has maintained a land, sea and air blockade on Gaza since 2006, which was tightened further when the Islamist movement Hamas seized control there the following year.
The official said residency will also be allowed for Assaf's sister and brother-in-law, who is his manager, as well as the couple's three children.
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Born to Palestinian parents in Misrata, Libya, 23-year-old Assaf grew up in the teeming Khan Yunis refugee camp in southern Gaza before winning the 2013 edition of Arab Idol in Beirut in June.
His victory sparked scenes of jubilation across the Palestinian territories.
The week after he won, Assaf performed in from of some 40,000 fans in the West Bank city of Ramallah.
"If Assaf had been anything less than a superstar, he would have had little chance of setting foot in the West Bank because of the Israeli policy of restricting the voyage to 'exceptional humanitarian circumstances.'"
UNRWA, the United Nations' Palestinian refugee agency, named Assaf as its first youth ambassador in the region, characterising his victory as "fantastic.