Russia expelled Israel's military attache at its Moscow embassy because he engaged in industrial espionage, an unnamed secret service official told the state RIA Novosti news agency on Thursday.
The source said air force Colonel Vadim Leiderman helped Israeli companies with links to the military illegally obtain sensitive technology from Russia.
"As far as Colonel Leiderman's detention is concerned, this deals entirely with industrial espionage — or rather, his overly active work on behalf of certain Israeli companies on the Russian market," the security source said.
Israel's Haaretz daily said the Soviet-born Leiderman's detention was the first incident of its kind to occur between the two countries in nearly two decades.
The Israel Defence Forces said Leiderman had been briefly detained last week and then given short notice to leave Moscow. He is currently believed to be in Israel.
"Security authorities in Israel completed a thorough investigation and concluded that these (spying) claims were unfounded," the Israeli defence ministry said.
Israel's state-run Channel One television said Leiderman was arrested in apparent breach of his diplomatic immunity while sitting at a cafe.
Russia and Israel enjoy close economic ties based on the Jewish state's vast ex-Soviet diaspora.
But Russia is also a key arms supplier to the Arab world and continues to sell advanced missile systems to Syria that Israel fears make their way to the Shiite Hezbollah movement in neighbouring Lebanon.