The Jewish state "began to reduce by eight megawatts electricity flow" into the Palestinian enclave, a statement from Gaza's energy authority said.
The state-run Israeli Electricity Corporation said it had diminished power supplies "in accordance with a government directive".
The Israeli move came after the Palestinian Authority, which is based in the occupied West Bank, informed Israel it would no longer be footing the bill for electricity in Gaza.
The coastal enclave is controlled by Islamist group Hamas, which is at loggerheads with Palestinian president Mahmud Abbas.
The cut, which will reduce the power flow to Gaza to just two hours a day, raises concerns of rising tensions and a collapse of vital services in a territory that has experienced three wars with Israel since 2008.
Hamas has run Gaza since 2007, when it seized the territory in a near civil war from Abbas' Fatah party in a dispute over parliamentary elections won by the Islamist movement.
Until today, Israel supplied 120 megawatts of electricity to Gaza a month, which made up approximately one quarter of the enclave's needs, with the Palestinian Authority paying the 11.3 million euros (USD 12.65 million) monthly bill.
Since the sole power station in Gaza ran out of fuel and stopped working in April, the 120 megawatts represent 80 per cent of available power in the enclave.
The Gaza energy authority said Monday's "dangerous" reduction would have "serious effects" in a territory already suffering from chronic power shortages.
The Israeli Electricity Corporation said power "supply will effectively be reduced on two lines out of ten every day, until the reduction applies to all ten lines".
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)