Honduran President Juan Orlando Hernandez will travel to Jerusalem to open a "diplomatic office" there on September 1, the embassy said in a statement.
"In my view, Jerusalem is recognized as the capital of the State of Israel," Hernandez said, adding that the "diplomatic office" was an "extension" of his country's embassy in Tel Aviv.
The Foreign Ministry said in a statement that Israel put forward the idea of moving the embassy to Jerusalem in a proposal currently being "analyzed in international and national atmosphere."
Hernandez said in March he would open a commercial office in Jerusalem. It was not clear how the diplomatic office would link to the business, and in recent months he had indicated his government was considering moving its embassy to Jerusalem.
The wife of Israeli Prime Minister Benjamin Netanyahu announced on Tuesday that Honduras will open a diplomatic representation in occupied Jerusalem next Sunday.
On May 14, 2018, the United States moved its embassy to Israel from Tel Aviv to Jerusalem, fulfilling a promise made by President Donald Trump.
The move angered Palestinians who consider East Jerusalem, which Israel captured in 1967, as the capital of a future state.
Most foreign capitals decided to keep their embassies in Israel outside Jerusalem until a solution to the city's status was found through negotiations.
Last year, Guatemala officially moved its embassy from Tel Aviv to Jerusalem. Honduras, Romania and the Czech Republic plan to implement the decision to move their embassies to the occupied city, but no date has been set.