Palestinian President Mahmoud Abbas has dismissed the Hamas-led government and declared a state of emergency.
The announcement follows a week of violence between Hamas and Fatah supporters in which more than a hundred people have died. Elections will be called as soon as possible.
Hamas militants had earlier taken control of a security compound belonging to Fatah in Gaza City, further expanding its control over the territory.
Gunmen entered the Fatah security headquarters in the Tal al-Hawa area this afternoon and hoisted the green flag of the Islamist movement on the roof after battles that left 14 Fatah members dead.
Hamas had issued an ultimatum to those inside, calling on them to surrender or 'risk the wrath of the surrounding force'.
After a deadline for surrender expired, the compound was invaded and dozens of Fatah fighters were escorted out of the building with their hands in the air.
The Tal al-Hawa compound is the largest Fatah stronghold to fall to Hamas fighters in Gaza so far. Hamas has already driven its rivals from positions in the south and the north of Gaza over the past several days of clashes.
The ongoing power struggle between Hamas and the secular Fatah movement is threatening to destroy the already fragile Palestinian unity government.
The Hamas-Fatah coalition was formed in March with the hope of ending factional bloodshed and lifting a debilitating Western aid boycott imposed following a Hamas election victory last year.
