No fuel will enter through Kerem Shalom until Sunday, but food and medicine deliveries will still be permitted.
Israeli Defence Minister Avigdor Lieberman said it was responding to “continued terror attempts” by the Palestinian Islamist movement Hamas.
Hamas, which dominates Gaza, warned Israel of “dangerous consequences”.
On Saturday, the Israeli military carried out waves of air strikes across the coastal territory in response to some of the most intensive bombardments from Gaza since the 2014 war between Israel and Hamas.
Two Palestinians were killed and 14 others wounded in the Israeli strikes, while four Israelis were wounded when more than 200 rockets and mortars were fired towards southern Israel.
The violence subsided after Hamas and Islamic Jihad militants agreed to a ceasefire brokered by Egypt.
Israeli Prime Minister Benjamin Netanyahu said he was prepared to “increase the force of our attacks” if Palestinians did not stop launching kites and balloons carrying containers of burning fuel and explosive devices over the Gaza-Israel border.
The devices have sparked hundreds fires in southern Israel, burning more than 2,830 hectares (7,000 acres) of forest and farmland and causing hundreds of thousands of dollars of damage, officials say.
The arson attacks began during mass demonstrations along the border, at which thousands of Palestinians have expressed their support for the declared right of Palestinian refugees to return to their ancestral homes in what is now Israel and also demanded an end to the blockade of Gaza imposed by Israel and Egypt.
Gaza health officials say more than 130 Palestinians have been killed and 15,000 others injured by Israeli forces during the protests.
Human rights groups have accused Israeli troops of using excessive force. Israel has said they have only opened fire in self-defence or on people trying to infiltrate its territory under the cover of the protests.
On Monday, Israeli aircraft bombed two Hamas posts after incendiary balloons caused four fires in Israel.
Later, Mr Lieberman announced that Kerem Shalom would be closed for fuel deliveries and the distance which Gaza’s fishermen would be allowed from the coast reduced from six nautical miles (12 km) to three.
It comes days after Israel suspended imports and exports through the crossing except for basic humanitarian supplies – fuel, food, some medical equipment and medicine, livestock, and animal feed – in order to put pressure on Hamas.
A Hamas spokesman called the closure a “crime against humanity”.
“These vengeful measures reflect the degree of the oppression and the ugliness of the crime that Gaza is facing, that will have dangerous consequences for which the occupation will bear full responsibility,” Fawzi Barhoum said.
The Israeli non-governmental organisation Gisha, which promotes freedom of movement for Palestinians, said the “shutting down of Gaza’s main lifeline is an abhorrent act of illegal collective punishment against the two million residents of Gaza, most of whom are children”.
Israel and Egypt imposed a land, sea and air blockade on Gaza when Hamas reinforced its power over the territory in 2007 by ousting its rivals, a year after winning legislative elections. The two countries say the blockade is for self-defence.