At least 20 tents were hit in the al-Mawasi area of Khan Younis during the early morning attack on Tuesday, as confirmed by local authorities.
The al-Mawasi area has been sheltering many displaced Palestinians in tents since the Israeli military designated the region a "safe zone" during its ground operations in Khan Younis and Rafah.
Rescue teams found craters as deep as 9 meters (30 feet) in the camp, local sources told Al Jazeera Arabic.
Witnesses reported chaos, with fires raging and Israeli reconnaissance aircraft flying overhead.
A spokesperson for Gaza’s Civil Defense described the strike as "one of the most heinous massacres" in the ongoing war.
Efforts to retrieve bodies were hindered by the destruction, emergency teams said.
Israeli authorities claimed that the strike targeted "significant Hamas" members operating a command center within the humanitarian zone in Khan Younis.
Hamas, the Resistance group in Gaza, denied that its fighters were in the area, accusing Israel of fabricating claims to justify its "ugly crimes."
"The resistance has repeatedly denied that its fighters are present in civilian areas," Hamas said in a statement.
Witnesses in Khan Younis reported chaotic scenes, with many casualties from the airstrike.
Attaf al-Shaar, a displaced person from Rafah, said the attack occurred shortly after midnight, causing a massive fire.
"The people were buried in the sand, retrieved in parts," al-Shaar told the Associated Press.
Al-Mawasi has been a crowded shelter for Palestinians since it was declared a "safe zone" by the Israeli military.
The Council on American-Islamic Relations (CAIR) condemned the attack, calling it a "massacre in a so-called 'safe area'" in Gaza.
Nihad Awad, CAIR's National Executive Director, criticized Israel’s government, accusing it of using US-supplied bombs to "massacre Palestinians."
Earlier this year, CAIR had condemned the US for sending military aid to Israel, including 2,000-pound bombs.
Israel’s genocidal war on Gaza has so far claimed the lives of at least 40,988 people and injured 94,825.