A report in Globes said the unnamed employee had been indicted on security offences in addition to theft. The source code he stole was valued at hundreds of millions of dollars.
The company sells its software only to government agencies. NSO Group is owned by an American private equity firm, Francisco Partners.
According to Wikipedia, "Pegasus is spy software installable on devices running certain versions of iOS, Apple's mobile operating system, developed by the Israeli cyberarms firm, NSO Group.
"Pegasus is capable of reading text messages, tracking calls, collecting passwords, tracing the location of the phone, and gathering information from apps."
The indictment was filed last week by the cyber security department of the Israel state attorney's office and the offence is rated as one of the worst cyber security and economic crimes in the country's history.
The accused, 38, has been charged with trying to damage property in a manner that would damage Israel's security, theft, defence marketing without a licence and disruption or obstruction of computer systems.
Globes said that at the time of the indictment, NSO Group had about 500 employees was worth about US$900 million.
It said that, according to the indictment, the accused has worked as a senior programmer and thus had access to the source code. He was called in for a meeting on 29 April before being sacked.
After the meeting, he connected a mobile device to the company's systems and stole the source code and manuals, bypassing the security on the system.
The man then attempted to sell what he had stolen, contacting someone on the dark web and saying he was one of a group of hackers who had broken into NSO Group's systems. He offered the source code for US$50 million in cryptocurrency.
However, the person to whom he tried to sell the code contacted the NSO Group who then tried to ascertain more details about what was being offered for sale. He was arrested on 5 June before any sale could be made.