The town council of Kirvat Yam, near Haifa, has stumped up a $1.2m (£609,000) reward for anyone who can prove the creature's existence with a photograph.
'Many people are telling us they are sure they've seen a mermaid and they are all independent of each other,' spokesman Natti Zilberman told Sky News.
'They say it is a female figure, it looks like a young girl.'
The 'mermaid' has only been spotted at sunset and people are turning out in their droves in the hope of catching sight of the creature - and banking the reward.
Mr Zilberman added: 'People say it is half girl, half fish, jumping like a dolphin. It does all kinds of tricks then disappears.'
The town hopes the sightings will bring more tourism to the region, said Mr Zilberman.
'I believe, if there really is a mermaid, then so many people and tourists will come to Kiryat Yam, a lot more money will be made than a $1m.'
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