Munir al-Bursh, director-general of the Gaza health ministry, told Al Jazeera that Israeli forces had raided the western side of the medical complex.
"There are big explosions and dust entered the areas where we are. We believe an explosion occurred inside the hospital," Bursh said.
Less than an hour earlier, around 1 a.m. local time (23:00 GMT), a Gaza health ministry spokesman said Israel had told officials in the enclave that it would raid the Shifa hospital complex "in the coming minutes."
Global calls for a humanitarian ceasefire have mounted in recent days, and the fate of Al Shifa has become a focus of international alarm because of worsening conditions in the facility, where thousands of patients, medical staff and displaced people have been trapped during the Israeli assault on Gaza in the past five weeks.
Israel has said that Hamas has a command centre underneath Al Shifa and uses the hospital and tunnels beneath it to conceal military operations and to hold hostages. Hamas denies it.
In a statement, the Israel Defence Forces (IDF) said: "Based on intelligence information and an operational necessity, IDF forces are carrying out a precise and targeted operation against Hamas in a specified area in the Shifa hospital."
The military added: "The IDF forces include medical teams and Arabic speakers, who have undergone specified training to prepare for this complex and sensitive environment, with the intent that no harm is caused to the civilians."
Israeli army spokesman Lieutenant Colonel Peter Lerner told CNN the hospital and compound were for Hamas "a central hub of their operations, perhaps even the beating heart and maybe even a centre of gravity."
The US said on Tuesday that its own intelligence supported Israel's conclusions.
Hamas said on Wednesday that US announcement had effectively given a "green light" for Israel to raid the hospital. The group said it held Israel and US President Joe Biden fully responsible for the operation.
Israeli forces have waged fierce street battles against Hamas fighters over the past 10 days before advancing into the centre of Gaza City and surrounding Al Shifa.
Israel has sworn to destroy Hamas in retaliation for the militants' cross-border assault into Israel on Oct 7. Israel says Hamas killed 1,200 people in the rampage and took more than 240 hostage.
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