The technique could lead to better models of groundwater flow, researchers said.
"It could be especially useful in agricultural regions, where groundwater pumping is common and aquifer depletion is a concern," said Rosemary Knight from Stanford University in the US.
Researchers applied the algorithm to determine groundwater levels across the entire agricultural basin of Colorado's San Luis Valley.
As a starting point, the algorithm uses data acquired using a satellite technology called Interferometric Synthetic Aperture Radar (InSAR) to calculate changing groundwater levels in the San Luis Valley between 1992 and 2000.
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The programme was initially developed in the 1980s by NASA to collect data on volcanoes, earthquakes and landslides, but Knight and Howard Zebker, also from Stanford, have in recent years adapted the technology for groundwater monitoring.
Scientists had previously shown that changes in surface elevation could be correlated with fluctuations in groundwater levels.
However, they were only able to do so for a relatively small area because they had to manually identify and analyse high-quality pixels in InSAR satellite images not covered by crops or other surface features that could obscure elevation measurements.
"What we have demonstrated in this new study is a methodology that allows us to find high-quality InSAR pixels in many more locations throughout the San Luis Valley," said Chen.
The algorithm also fills in, or interpolates, groundwater levels in the spaces between pixels where high-quality InSAR data are not available.
Interpolation is a form of averaging, but it requires high-quality InSAR data from places that are located near monitoring wells where groundwater levels are already known in order to calibrate the link between the InSAR data and groundwater levels, researchers said.
They were able to show how groundwater levels in the basin changed over time from 2007 to 2011 - the years when InSAR data that could be analysed by the algorithm were available.
The findings were published in the journal Water Resources Research.