The killing was captured on video and widely shared by Israeli human rights group B'Tselem.
In the video, Azaria is shown shooting at the deceased's head while the Palestinian was lying on the ground after being shot and wounded following the stabbing attack.
According to Independent report, prosecutors had demanded a three-to-five-year sentence but the panel of three judges decided that would be too severe.
Judge Maya Heller at Tel Aviv Court said they had taken into account mitigating factors including the 'harm suffered by his family' and the fact he was in 'hostile territory' when the shooting occurred.
Sergent Elor Azaria who didn't act in accordance with army protocol was sentenced to 18 months in prison and demoted to the rank of Private.