The Tuesday strike targeted al-Mawasi in western Rafah, an area where tents have been set up for the displaced, Palestinian media reported.
Israeli authorities had previously told Palestinian civilians caught in its brutal attacks on Rafah, Gaza's southernmost city bordering Egypt, to flee to the zone for safety.
Gaza's Civil Defense said four tank shells hit a cluster of tents in al-Mawasi, killing 21 people, 12 of them women.
The shelling came two days after an Israeli airstrike set off a blaze in a tent camp in western Rafah, killing at least 45 people and prompting global condemnation.
The United Nations Security Council is set to hold an emergency session on Tuesday to discuss the situation in Rafah following the Sunday massacre.
The UN agency for Palestinian refugees said Tuesday that more than 1 million Palestinians have fled Rafah since Israeli forces invaded the city three weeks ago.
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