Defense Minister Ehud Barak said Monday that the government has decided not to resume much-needed fuel shipments to the Gaza Strip.
Israel cut off the shipments last week in response to Palestinian rocket attacks. Officials said Barak would meet with his aides later Monday to discuss the matter.
The European Union, however, said it had been informed by Israel on Monday resumption of fuel shipments to the sole power plant in the Hamas-controlled Gaza Strip would be allowed starting on Tuesday.
Palestinian officials said the resumption would not come soon enough to prevent the plant running out of EU-funded fuel on Monday night, causing widespread blackouts.
Israel said it halted shipments of the fuel to the power plant in response to a surge in cross-border rocket attacks from the coastal territory over the last week.
Militants said they fired the rockets in response to an Israeli raid that killed six militants on November 4, casting doubt on a ceasefire that took hold in June.
"T[he Israel Defense Forces] informed us that fuel deliveries will resume tomorrow," said Alix de Mauny, a spokeswoman for the European Commission office for the West Bank and Gaza Strip. The EU's last shipment was made on November 4.
A senior Palestinian official with the power station said a fuel shortage would force the plant to shut down on Monday night. He said 750,000 to 800,000 Palestinians who live in and around Gaza City would be affected. Gaza is home to 1.5 million.
Deputy Defense Minister Matan Vilnai, speaking on Army Radio, described the blackout threat as Hamas "propaganda" and "nonsense", pointing to large quantities of diesel fuel being smuggled into the Gaza Strip through tunnels from Egypt.
An EU official said the power plant was running "very low" on fuel and noted the facility used a special type of industrial fuel, not regular diesel.
Israel tightened its economic and military cordon of the Gaza Strip when Hamas Islamists seized the territory in June 2007 after routing secular Fatah forces loyal to Western-backed President Mahmoud Abbas.
Under the terms of the Egyptian-brokered ceasefire, Israel has loosened some restrictions on aid but humanitarian groups say conditions in the coastal enclave continue to deteriorate.
According to Israeli and Palestinian officials, the local plant generates about a third of the electricity consumed by Gazans. The rest comes from Israel, which was continuing supply, and Egypt.