The Israeli Antiquities Authority (IAA) has said that the cistern could have held 66,000 gallons (250 cubic metres) of water.
It likely dates back to the era of the First Temple, which, according to the Hebrew Bible, was constructed by King Solomon in the 10th century BC and then destroyed 400 years later, Livescience reported.
Israeli archaeologists believe the reservoir served the general public in the ancient city, but said its location hints at a role in the religious life of Jerusalem.
"Presumably the large water reservoir, which is situated near the Temple Mount, was used for the everyday activities of the Temple Mount itself and also by the pilgrims who went up to the Temple and required water for bathing and drinking," Tvika Tsuk, chief archaeologist of Israel's Nature and Parks Authority, said.
The Temple Mount is a trapezoid-shaped, walled-in area in the southeastern corner of the Old City of Jerusalem.
Excavation director Eli Shukron, with the IAA, said the reservoir also sheds new light on the extent of the public water system in Jerusalem hundreds of years ago.
"It is now absolutely clear that the Jerusalem's water consumption during the First Temple period was not solely based on the output of the Gihon Spring, but that it also relied on public reservoirs," Shukron said.
The Gihon Spring was the main source of water for the city.
The reservoir was exposed during excavations on a massive drainage channel dating to the Second Temple period, according to the IAA.
Archaeologists said they were able to estimate the age of the cistern based on signatures in its plaster treatment and its similarities with other First Temple reservoirs at sites such as Tel Be'er Sheva, Tel Arad and Tel Bet Shemesh.
The findings were presented at an annual conference on the City of David Studies of Ancient Jerusalem.
