Israeli tanks are deployed in southern Israel near the border with the Gaza Strip on Friday. AFP

Israel on Saturday mourned the deaths of three Gaza hostages killed when troops mistook them for a threat, with the military expressing remorse over a "tragic" incident that sparked protests in Tel Aviv.

The Israeli army said Yotam Haim, Alon Shamriz and Samer El-Talalqa — all aged in their twenties — were shot during operations in a neighbourhood of Gaza City.

The trio were among an estimated 240 people taken hostage during Hamas's October 7 raids into Israel.

"During combat in Shejaiya, the IDF (Israel Defence Forces) mistakenly identified three Israeli hostages as a threat and as a result, fired toward them and the hostages were killed," Israel Defense Forces spokesman Daniel Hagari said.

"The IDF expresses deep sorrow regarding this disaster and shares in the grief of the families."

Their bodies were transferred to Israel, and on examination were confirmed as being Haim, a 28-year-old heavy metal drummer, 25-year-old Bedouin man El-Talalqa and Shamriz, aged 26.

Relatives of hostages held by Hamas demonstrate outside the Israeli ministry of defence in Tel Aviv on Friday. AFP

Prime Minister Benjamin Netanyahu described their deaths as an "unbearable tragedy".

"All of Israel is grieving their loss," he said, while the White House called the incident a "tragic mistake".

As news of the incident spread late Friday, hundreds of people gathered at Israel's ministry of defence in Tel Aviv to call on Netanyahu's government to secure the release of 129 hostages still being held in Hamas-ruled territory.

The demonstrators waved Israeli flags and brandished placards.

"Every day, a hostage dies," read one message.

"I am dying of fear," said Merav Svirsky, sister of Hamas-held hostage Itay Svirsky.

"We demand a deal now."

In November, a short-lived truce saw more than 100 hostages freed in exchange for Palestinians held in Israeli jails.

That deal has since lapsed and fighting has resumed.

Agence France-Presse