The army said that the tunnel, which ran for nearly a mile, extended 650 feet into Israeli territory, and was used to bring weapons into Israel for use by terrorists.
The army said that it views Hamas as responsible for what happens in Gaza.
The target struck was a tunnel that passed below the Kerem Shalom crossing.
"This is a blatant violation of Israeli sovereignty, endangering the citizens of Israel and sabotaging the humanitarian efforts that Israel is making for the citizens of Gaza", read a statement by the IDF.
Last year, IDF Chief of Staff Gadi Eisenkot responded to criticism that the military was targeting "sand dunes and empty bunkers" in its strikes in Gaza, telling the Knesset that the IDF is actively thwarting the tunnels and publicly acknowledging for the first time that the army has the technology to do so.
Medical sources in Gaza said that Abdullah Zeidan, 33, from the Shati refugee camp, was shot in the chest by Egyptian forces near the naval border with Egypt in the south of the coastal enclave.
Conricus, the military spokesman, noted that the tunnel's route stretched underneath the Kerem Shalom crossing, where 15 million tons of food, clothing, construction material and other essential goods had been transferred into Gaza since the 2014 war.
On Saturday evening the army informed the Palestinians that it would temporarily close the Kerem Shalom crossing for all traffic starting Sunday morning. "This is a key mission for us and our intention is to allow quiet and to deter Hamas so we can continue to build the obstacle".
In addition, they said Israel has been constructing a sensor-equipped underground wall along the 60-km (36-mile) Gaza border, aiming to complete the $1.1 billion project by mid-2019.
The Hamas-run Gaza health ministry said dozens of Palestinians were injured by live fire, rubber bullets and tear gas during the riots. "We are responding to aggression against the state of Israel and are taking vigorous and systematic action against hostile infrastructures", he said.
Israel shut down the crossing on December 14 following multiple rockets and mortar attacks from Gaza, along with Erez Crossing, through which people enter and exit the Strip.
It is the second time Kerem Shalom has been closed in under a month.
Violent riots raged in the Gaza Strip and across the West Bank as parts remain under military lock down following the shooting of a settler in the Nablus area last week, the Israel Defense Forces reported Friday.