We investigate the kinetic roughening of Ar+ ion-sputtered Pd(001) surface both experimentally and theoretically. In situ real-time x-ray reflectivity and in situ scanning tunneling microscopy show that nanoscale adatom islands form and grow with increasing sputter time t. Surface roughness W(t) and lateral correlation length xi(t) follow the scaling laws W(t) approximately t(beta) and xi(t) approximately t(1/z) with the exponents beta approximately 0.20 and 1/z approximately 0.20, for an ion beam energy epsilon=0.5 keV, which is inconsistent with the prediction of the Kuramoto-Sivashinsky (KS) model. We thereby extend the KS model by applying the coarse-grained continuum approach of the Sigmund theory to the order of O(inverted Delta(4),h(2)), where h is the surface height, and derive a new term of the form inverted Delta(2)(inverted Delta h)(2) which plays a decisive role in describing the observed morphological evolution of the sputtered surface.