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Palestinian businesses warned Tuesday that an Israeli decision to suspend exports from the Gaza Strip put the Palestinian territory at risk of a "humanitarian catastrophe".

Israel's army chief on Monday ordered a halt to commercial deliveries from Gaza to Israel after an alleged attempt to smuggle explosives.

The Gaza Strip has been under a crippling Israeli blockade since the Islamist group Hamas seized power in the Palestinian territory in 2007.

Gaza Chamber of Commerce president Ayed Abu Ramadan said the Israeli decision was "a new escalation in the policy of the economic blockade" on the coastal enclave.

Home to around 2.3 million Palestinians, Gaza is plagued by poverty and unemployment - conditions Ramadan warned would only worsen with the "unjust" move - due to the siege.

He denounced that the Israeli "collective punishments" risk causing "a real humanitarian catastrophe".

Osama Nofal, of the Gaza economic ministry, put the value of Gaza exports to Israel and the occupied West Bank at around $134 million a year, with the bulk being fruit and vegetables, fish, clothing and furniture.

Palestinian Federation of Industries spokesman Waddah Bseiso said the Israeli decision could force "hundreds of factories to close" and thousands of layoffs.

Israel said on Monday that its security forces had "detected several kilograms of high-quality explosives hidden within a clothing delivery carried by three trucks" at the Kerem Shalom crossing between Gaza and Israel.

In response, army chief of staff Herzi Halevi, with approval from Defence Minister Yoav Gallant, ordered the halting of "commercial deliveries from Gaza to Israel, allowing security adjustments to be made at the crossing".

"Deliveries will resume in accordance with subsequent situation assessments," the Israeli army and defence ministry said in a joint statement.

The Kerem Shalom crossing is the only point of entry for goods between the Gaza Strip and Israel.

The Israeli suspension comes with tensions raging in the occupied West Bank with over 200 Palestinians being killed since the beginning of the year as Israeli raids on the territory have increased.

Israel says that its land, air, and sea blockade of Gaza is necessary to protect it from attacks from Gaza. Hamas, which runs Gaza and won the 2006 Palestinian general election, is considered a terrorist organisation by the US, UK, Israel and EU.