The technique could lead to better models of groundwater flow.
"It could be especially useful in agricultural regions, where groundwater pumping is common and aquifer depletion is a concern," said study co-author Rosemary Knight, professor of geophysics in the Stanford School of Earth, Energy & Environmental Sciences.
The new method was detailed in the journal Water Resources Research.
The researchers recently applied the algorithm to determine groundwater levels across the entire agricultural basin of Colorado's San Luis Valley.
As a starting point, the algorithm uses data acquired using a satellite technology called Interferometric Synthetic Aperture Radar, or InSAR, to calculate changing groundwater levels in the San Luis Valley between 1992 and 2000.
InSAR satellites use electromagnetic waves to monitor tiny, centimeter-scale changes in the elevation of the Earth's surface.
"What we've demonstrated in this new study is a methodology that allows us to find high-quality InSAR pixels in many more locations throughout the San Luis Valley," first author Jingyi "Ann" Chen, a Stanford postdoctoral researcher who developed the new algorithm, said.
With the new method, the team was able to calculate surface deformations - and, by extension, groundwater levels - for the entire agricultural basin of the San Luis Valley, an area covering about 4,000 square kilometres.
What is more, the team members were able to show how groundwater levels in the basin changed over time from 2007 to 2011 - the years when InSAR data that could be analysed by the algorithm were available.