The explosion happened early on Tuesday after "the guard received an anonymous call that the boat would explode in a few minutes," Mahfouz Kabariti, a spokesman for Gaza's Ark, the coalition that had funded the boat's building, told Al Jazeera.
After spending two years building the boat, Gaza's Ark had planned the boat's first sailing test next week.
The explosion caused damage to the engine and the hull as it partly sank. Divers were sent to assess the extent of the damage.
Kabariti refused to blame any party, saying "it's still premature".
Eyad Al-Bouzom, a spokesman for Gaza's Interior Ministry, said the authorities opened an investigation into the incident. "We will follow the case as it's a great priority for us," he told Al Jazeera.
Gaza's Ark comprises Palestinian activists and international campaigners from Canada, Australia and the United States.
The initiative aims at sailing with this boat out from Gaza to challenge the naval blockade, which Israel tightened in 2007. Palestinian fishermen can sail up to six nautical miles, but have reported being shot by Israeli naval forces as close as two nautical miles from shore. Kabariti recalled several past incidents in which Israeli naval forces destroyed Palestinian ships by explosives.
Before Israel's major military assault in Gaza in the winter of 2008-2009, Israel allowed several boats carrying western and Arab activists to sail to Gaza.
But Gaza's Ark would have been the first boat to sail out of Gaza in several years. Kabariti said the voyage was scheduled for June 15.
The boat, with a fibreglass body, wooden cabin and deckhouse, was supposed to carry the activists and some products made by impoverished families in Gaza to Europe.
"The boat was made to break the siege from inside," according to Kabariti. "One of its goals was to empower the families who have had no chance to export their products."
Kabariti said the activists are determined to sail after the boat is repaired.
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