Seismic data from NASA's Insight Lander indicates deep, porous rock filled with "oceans" of liquid water that scientists estimate would cover the entire red planet to a depth of around a mile.
But they say it's just too deep to drill into with current technology to help sustain any future Martian colony.
It is understood that oceans disappeared from the surface of Mars more than three billion years ago.
But American geophysicists say the underground reservoir won't be of much use to any future colonists as it's located in tiny cracks and pores in rock in the middle of the Martian crust, between 11.5 kilometers (seven miles) and 20 km (12.5 miles) below the surface.
Drilling a hole just one mile deep is a major challenge, even on Earth.
The researchers say their findings, published in the journal Proceedings of the National Academy of Sciences (PNAS), do pinpoint another promising place to look for life on Mars if the reservoir can be accessed.
They concluded that the seismic data from Insight is best explained by a deep layer of fractured igneous rock saturated with liquid water. Igneous rocks are cooled hot magma.
Study co-author Professor Michael Manga, of the University of California, Berkeley , said: "Establishing that there is a big reservoir of liquid water provides some window into what the climate was like or could be like.
"And water is necessary for life as we know it.
An illustration shows a cutout of the Martian interior beneath NASA's Insight lander. (James Tuttle Keane and Aaron Rodriquez, courtesy of Scripps Inst via SWNS)
I don't see why [the underground reservoir] is not a habitable environment. It's certainly true on Earth - deep, deep mines host life, and the bottom of the ocean hosts life.
"We haven't found any evidence for life on Mars , but at least we have identified a place that should, in principle, be able to sustain life."
Manga says that lots of evidence - river channels, deltas and lake deposits, as well as water-altered rock - supports the theory that water once flowed on the surface of Mars.
But that wet period ended over three billion years ago after Mars lost its atmosphere.
Planetary scientists have sent probes and landers to the red planet to find out what happened to that water.
They say that the water frozen in Mars' polar ice caps can't account for it all - as well as when it happened, and whether life exists or used to exist on the planet.
The new findings indicate that much of the water didn't escape into space but instead filtered down into the crust.
The Insight lander was sent by NASA to Mars in 2018 to investigate the crust, mantle, core and atmosphere, and it recorded much information before the mission ended in 2022.
Prof Manga said: "The mission greatly exceeded my expectations.
"From looking at all the seismic data that Insight collected, they've figured out the thickness of the crust, the depth of the core, the composition of the core, even a little bit about the temperature within the mantle."
Assuming the crust below the Insight lander is similar throughout Mars, the research team says there should be more water in the mid-crust zone than the "volumes proposed to have filled hypothesized ancient Martian oceans."
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