Steinitz's remarks appeared to break with Israeli government reticence over last month's killing, which has caused global outrage.
It was not clear if Prime Minister Benjamin Netanyahu shared his views and Netanyahu's office did not respond to a request for comment.
The Saudi government initially denied Khashoggi had been killed then later said he died in an unplanned "rogue operation". Last week, the kingdom's public prosecutor Saud Al Mojeb said the attack was premeditated.
Asked about Khashoggi on Tel Aviv radio station 102 FM, Steinitz, a member of Netanyahu's security cabinet, said: "It was a despicable action. It's worthy of all reproach. This was a civilian, a journalist, not a terrorist."
He went on to say, however, that Israel's struggle against Iran was more pressing.
"We have a threat that can become an existential threat - the threat of a nuclear Iran, the threat of terror, the threat of spreading through Syria and Lebanon. And Arab states, including Saudi Arabia, are our allies in recent years against the spread of Iran and against the Iranian nuclear threat," he said.
Iran denies it is trying to nuclear weapons.
Netanyahu made a surprise visit last week to Oman, whose foreign minister then told Gulf neighbors that Israel should be accepted in the region. Other Israeli delegates this week visited the United Arab Emirates.
The Trump administration, which has brought US policy sharply in line with Israel's, has also sought closer s relations with Saudi Arabia. US envoys see Riyadh and other Gulf powers as possible partners in a broad peace deal with Israel that would overtake its long-stalled bilateral negotiations with the Palestinians.