Previously, only larger, Jupiter-like giants have been studied in this way.
Working with three space telescopes, astronomers deduced the presence of water by measuring the colours of light the planet absorbed when it passed in front of its star.
The find appears in the journal Nature.
It was made by a team of researchers led from the University of Maryland, US.
The planet, designated HAT P-11b, orbits a sun in the constellation Cygnus some 124 light-years - about a quadrillion kilometres - from Earth. It is roughly four times the width of our home world.
The scientists studied the planet's atmosphere with the aid of the US space agency's Hubble, Spitzer and Kepler telescopes.
Their observations were also greatly assisted by there being no clouds on HAT P-11b, which would otherwise have frustrated their attempts to probe its gaseous envelope.
The team determined that the far-off world's atmosphere contained about 90% hydrogen, but also significant quantities of water vapour as well.
Commenting on the findings, Dr Eliza Kempton from Grinnell College, Iowa, said the Maryland group had taken another important step in the study of exoplanets - planets beyond our Solar System.
"Astronomers have detected water vapour in the atmospheres of larger planets - planets that are closer in size to Jupiter.  But you can imagine that eventually we want to be able to detect molecules in the atmospheres of even smaller planets.
"We'd like to be able to look at an Earth-sized planet and measure its gaseous composition.  So this is a step on the ladder; we're stepping down the ladder towards smaller and smaller planets," she told this week's Science In Action programme on the BBC World Service.
Water has obvious implications for life, although HAT P-11b is too close to its star - and therefore too hot - to be habitable.
But in the future study of Earth-sized exoplanets, the presence of water will be an important consideration as scientists search for biology elsewhere in our galaxy.

The lorry then crashed into a house in Bolney Road, Ansty, West Sussex. The cottage's occupants were unhurt, but the building has structural damage.
A 72-year-old man who was driving a VW sustained serious injuries. The other drivers were also taken to hospital.
The A272 Bolney Road was closed at the junction with Bishops Lane and Pickwell Lane until the early hours, following the crash on Saturday afternoon.
Ricky, the owner of the property - who did not want to give his full name - told the BBC he had only just finished renovating the house.
"We started in September and finished it on Saturday morning, and now we've got to start all over again.
"The downstairs is wrecked and the front top room is also damaged."
He said his wife's grandparents, who are in their 90s, were in the property at the time and were very "shaken up".
"Luckily they managed to get out... a few cuts and bruises but otherwise OK," he said.

Stormont has so far not put in place changes to benefits that have been implemented in other parts of the UK.
This has led to fines from the government.
Justin Welby told BBC Radio Ulster that there should be extra help to assist people here out of poverty.
"Should Northern Ireland itself be a special case?" he said.
"Yes it probably should, although not as a basket case or a charity case, but as a recognition of what has gone wrong in the past."
Secretary of State Theresa Villiers said the government continued to recognise Northern Ireland's special circumstances.
"That is why public spending per head is 23% higher here than the UK average," she said.
"When it comes to welfare reform Northern Ireland has much to gain from replacing a failed system that traps far too many people into dependency with a modern system that ensures work always pays."
The Northern Ireland parties had agreed on a welfare reform deal in December but Sinn FÃ©in withdrew its support in March.
Inter-party talks in Northern Ireland began in September in a bid to resolve the current political crisis at Stormont.
The two key issues being discussed are the impasse over welfare reform and paramilitary activity.
A cloud-free atmosphere has allowed scientists to pick out signs of water vapour on a distant planet the size of Neptune: the smallest "exoplanet" ever to reveal its chemical composition.
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A motorist was seriously injured in a crash involving a lorry and two cars.
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The Archbishop of Canterbury has said he believes Northern Ireland should be treated as a special case when it comes to the issue of welfare reform.