The Discount Bank on Wednesday cut ties with banks in Gaza, in line with the Israeli government designation of Gaza as a "hostile territory," the bank said in a statement.
Palestinians do not have their own currency, using the Israeli shekel for transactions.
The Discount Bank decision followed a similar one by the larger Bank Hapoalim to sever links with banks in Gaza. They were the only two Israeli commercial banks dealing with financial institutions in Gaza.
The Cabinet declared Gaza a "hostile territory" last month, following the June takeover of Gaza by the Islamic Hamas, expelling forces loyal to moderate Palestinian Authority President Mahmoud Abbas. Hamas does not recognize Israel's existence and has send dozens of suicide bombers into the Jewish state, killing hundreds.