"At least five Palestinians have been killed and 15 more were injured," said Mohahya Hassine, the area's emergency services director.
"The accident was perhaps caused by a gas explosion."
According to the Israeli government, the border town of Rafah is frequently used as a crossing point for arms and explosives trafficked through underground tunnels.
But Palestinians have said that the tunnels are a desperate response to an Israeli blockade of the poverty-stricken territory, in force since Hamas took control last year from forces loyal to Mahmoud Abbas, the Palestinian president.