Israel has already begun reducing petrol and diesel supplies - it says the action is in response to rocket attacks by Palestinian militants.
The government's senior legal adviser, said on Monday that ways of limiting the humanitarian effects of reducing the electricity supply had to be found.
UN chief Ban Ki-moon has called the plans punitive and unacceptable.
Attorney General Menachem Mazouz's decision came after a number of human rights groups criticised the proposed cutbacks as collective punishment of the Palestinian people.
Mr Mazouz did approve other restrictions, including on the supply of fuel to Gaza.
A range of such economic and political sanctions continue to cause daily hardship for Palestinians, our Jerusalem correspondent Mike Sergeant says.
'Humanitarian obligations'
A statement from Mr Mazouz read: "Security chiefs must carry out supplementary examinations to take account of the humanitarian obligations before ordering electricity cuts."
The Israeli Supreme Courts has given the government until Friday to justify the economic sanctions it is seeking to impose on the Palestinian territory.
| | ISRAEL'S PROPOSED SANCTIONS Gaza relies on Israel for almost all its fuel and more than half of its electricity Cuts of up to 15% in petrol and 10% in diesel Targeted electricity outages of at least 15 minutes in response to each new rocket attack Supplies of crude diesel to Gaza's power plant not due to be affected Source: Israeli officials |
Gaza relies on Israel for almost all its fuel and petrol, and more than half of its electricity.
Israel says fuel cuts of up to 15% are a non-violent way of increasing pressure on Hamas. Israel started implementing the cuts on Sunday.
It insists there will be enough power for hospitals and that supplies will continue to Gaza's sole power station.
'Punitive'
UN Secretary General Ban Ki-moon condemned the action on Monday.
In a statement read out by a spokesperson, Mr Ban urged Palestinian militants to end indiscriminate rocket attacks on Israel, which he condemned.
But he also stated his belief that the "punitive measures taken by Israel... harm the well-being of the entire population of the Gaza Strip".
Benita Ferrero-Waldner, EU commissioner for external relations, said on a visit to Jerusalem she was "very concerned" about the Israeli move though she understood Israel's "distress" over rocket attacks.
"I think collective punishment is never a solution," she said.
As part of its sanctions, Israel had was envisaging shutting down one of its power lines to Gaza for 15 minutes after a rocket attack, with the cut-off period gradually increasing to a two-hour limit if barrages continue.
The cuts have also been condemned by Hamas, which governs the territory, as a crime against Gaza's population.
Rockets are fired by Palestinian militants from Gaza into Israel on an almost daily basis. Israel withdrew all its settlements from Gaza in 2005. Palestinian militants say they are responding to continued Israeli aggression in Gaza and the West Bank.
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