An Israeli soldier takes position at an undisclosed location on the border with the Gaza Strip on Sunday. AFP

The death toll in Israel after a surprise attack by Hamas has surged to more than 600, while over 100 people were being held as "prisoners" by the group, the Israel government said.

The government's press office posted the latest figures on its Facebook, which were confirmed to reporter by an official working at the bureau who declined to be named.

The death toll "is not a final number," the official said, adding that more than 2,000 people had been wounded including 200 who were in "critical condition."

Meanwhile, Israeli soldiers battled Hamas fighters in the streets of southern Israel on Sunday and launched retaliation strikes that levelled buildings in Gaza.

A young woman reacts as she speaks to Israeli rescuers in Tel Aviv, after a rocket fired from the Gaza Strip. AFP

There was still some fighting underway more than 24 hours after an unprecedented surprise attack from Gaza, in which Hamas, backed by a volley of thousands of rockets, broke through Israel's security barrier and rampaged through nearby communities.

Hamas fighters also took captives back into the coastal Gaza enclave, including women, children and the elderly, who they will likely try to trade for thousands of Palestinian prisoners held by Israel.

A man carries a gas canister amid the ruins of Gaza City's Al Watan Tower, after an Israeli airstrike. AFP

The high death toll, multiple captives and slow response to the onslaught pointed to a major intelligence failure and undermined the long-held perception that Israel has eyes and ears everywhere in the small, densely populated territory it has controlled for decades.

Israeli Prime Minister Benjamin Netanyahu said the country was at war and would exact a heavy price from its enemies. Hamas leaders said they were prepared for further escalation.
Netanyahu vowed that Hamas "will pay an unprecedented price.” But, he warned, "This war will take time. It will be difficult.”

Agencies