The ship, laden with 3,000 tonnes of goods, was stopped several kilometres (miles) off Gaza's shores and ordered to return to the Egyptian port of El-Arish, said Palestinian MP Jamal Khodary, who heads an international campaign against the Israeli sanctions.
"Navy ships approached the Libyan boat and ordered it on the radio to turn back, and so it did," Israeli foreign ministry spokesman Yigal Palmor said.
"Anyone wishing to transfer humanitarian aid into Gaza is welcome to do it in coordination with Israel and through the regular crossings. They can also contact Egypt."
Israel sealed its crossings with Gaza -- the overcrowded territory's main gateway for food and humanitarian aid -- as well as its maritime borders after the Islamist movement Hamas violently seized power there in June 2007.
The sanctions were again tightened in recent weeks amid renewed tensions and tit-for-tat exchanges of fire that threatened to destroy an Egyptian-brokered June 19 ceasefire.
The Rafah crossing on the Egyptian border with Gaza has been shut since June 2006 but has opened on a few occasions for humanitarian purposes.
Hamas said turning the Libyan boat back "showed the true, criminal face of the occupation".
A spokesman for the Islamist movement, Fawzi Barhum, also urged Egypt to reopen the Rafah crossing. "Its closure will enter into history as a crime committed by all those who besiege Gaza," he said in a statement.
In Tripoli, an official said the ship's crew was in contact with the Libyan authorities.
"The crew has told us Israeli warships were conducting harassment measures even though it is a civilian vessel loaded with humanitarian aid," the official told AFP.
The source said that the crew will have no option but to return to Libya as the goods cannot be unloaded in Gaza.
The Libyan attempt to deliver aid to Gaza was the first such effort by an Arab state to defy the blockade, although European and other pro-Palestinian activists have made three trips from Cyprus since August without being intercepted by the Israeli navy.
The pro-Islamist Qatar Charity Organisation said in Doha on Monday it plans to ship one tonne of medical aid to Gaza this week in a bid to break the blockade.
Its vice president Abdallah al-Nimaa told AFP the ship is set to sail from Doha on Friday, but that he expects the Israeli authorities to stop the vessel.
The Libyan consignment consists of 1,200 tonnes of rice, 750 tonnes of milk, 500 tonnes of oil, 500 tonnes of flour and 100 tonnes of medicine, said the Libyan Fund for Aid and Development in Africa, which chartered the vessel.
Most of the 1.5 million people living in the Gaza Strip depend on foreign aid.
Libya, the only Arab state on the 15-member UN Security Council, has no diplomatic relations with Israel and has frequently criticised it over the situation in Gaza.
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