Work on a new generation of lightweight rifle using the intermediate 5.56mm round began at SIG in the 1960s and resulted in the somewhat unsuccessful SG 530-1 design that employed a gas-assisted roller-delayed blowback operating mechanism which proved too complicated and expensive to manufacture.

As a result, in 1969 SIG chose to dispense with the complex roller-delayed action opting instead for a design using the more robust and simple piston-operated rotating bolt locking mechanism (derived from the Soviet 7.62×39mm AK-47 assault rifle).

SIG designers used a long-stroke piston-driven action (with the recoil spring wrapped around the piston rod itself) and an adjustable gas regulator with three settings: "0" (used to launch rifle grenades), "1" (used in normal operating conditions), and "2" (used in extreme environmental conditions or in the presence of heavy fouling).

The spent cartridge casing is extracted by a claw extractor contained in the bolt assembly while a protrusion on one of the internal bolt carrier guide rails in the upper receiver acts as the fixed ejector, removing the casing through a port on the right side of the receiver housing.

The iron sights consist of a hooded foresight that can be corrected in elevation and an adjustable (windage only), a rear rotating diopter drum that contains four apertures with settings for firing at: 100, 200, 300 and 500 m. The receiver top surface can be used to mount adapters enabling the use of optics.

In order to minimize costs, the weapon made extensive use of cost-saving pressed and stamped steel components rather than machined parts.

The unusual chambering for this type of military-style rifle was an attempt to comply with regulations in certain European countries imposing restrictions on the civilian ownership of "military" cartridges such as the 5.56×45mm NATO/.223 Remington or 7.62×51mm NATO/.308 Winchester.