The explosion, which occurred in a hardware store in Jaffa late on Monday, caused adjacent structures to collapse.
Two men were pronounced dead at the scene, while a third died later of his injuries, police said.
Another four people were still being treated for their injuries, medics said.
A police spokeswoman said the three men killed had provisionally been identified as a Jaffa resident, a man from the Israeli Arab town of Taibe and a Palestinian from the occupied West Bank.
Police were still investigating whether the explosion was accidental or deliberate.
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