Gaza, run by Hamas Islamists, relies on Israel for most of its energy needs. Its population of two million currently receives around six hours of electricity followed by a 10-hour power cut.
"The power feed may now decline to only four hours (per day)," said Mohammad Thabet, an official at Gaza's main power distribution company, after fuel ran out at the plant.
Gaza homes and businesses rely on generators to make up for the lengthy power cuts, increasing the financial pressure on its largely impoverished people.
Officials in Gaza said the power plant's closure would cause disruptions at vital facilities such as hospitals, which are also equipped with generators.
Dozens of helium balloons carrying incendiary material have been launched from Gaza in recent days, in what political sources described as a bid to pressure Israel to ease its blockade and allow more Arab and international investment.
Israel cites security concerns in imposing restrictions.
The political sources said the balloons were part of efforts to persuade Qatar to increase its cash aid to Hamas as the Gulf state attempts to lower Gaza border tensions.
Israel has carried out air strikes over the past week against positions held by Hamas and other factions, saying it would not tolerate the balloon incidents.
Anticipating Israeli attacks after balloon or rocket launchings, Hamas routinely evacuates personnel from outposts.
With tensions high, Israel has closed its lone commercial crossing with Gaza and banned sea access, effectively shutting down commercial fishing.
Egyptian mediators on Monday held talks in Israel and Gaza on restoring calm.