The upcoming technology of wide-swath altimetry from space will deliver a large volume of data on the ocean surface at unprecedentedly high spatial resolution. These data are contaminated by errors caused by the uncertainties in the geometry and orientation of the on-board interferometer and environmental conditions, such as sea surface roughness and atmospheric state. Being highly correlated along and across the swath, these errors present a certain challenge for accurate processing in operational data assimilation centers. In particular, the error covariance matrix R of the Surface Water and Ocean Topography (SWOT) mission may contain trillions of elements for a transoceanic swath segment at kilometer resolution, and this makes its handling a computationally prohibitive task. Analysis presented here shows, however, that the SWOT precision matrix R−1 and its symmetric square root can be efficiently approximated by a sparse block-diagonal matrix within an accuracy of a few per cent. A series of observational system experiments with simulated data shows that such approximation comes at the expense of a relatively minor reduction in the assimilation accuracy, and, therefore, could be useful in operational systems targeted at the retrieval of submesoscale variability of the ocean surface.