General Tariq Abu Rajab, the commander of the intelligence service, was seriously wounded in the explosion shortly before noon on Saturday.
Samir Abu Shamalah, Aljazeera's correspondent in Gaza said seven people had been injured, two seriously including Abu Rajab. The bodyguard who died was Abu Rajab's nephew, Ali Abu Hasira.
The explosion took place near Abu Rajab's private lift at the headquarters in al-Sudaniya area, northwest of Gaza City, the correspondent said.
Palestinian security sources say the blast was an assassination attempt. Abu Rajab survived a previous assassination attempt in 2004.
Khalid Abu Hilal, a spokesman for the Palestinian interior ministry, told Aljazeera that initial information showed the explosion took place when a bomb was mistakenly dropped from one of Abu Rajab's bodyguards.
"This is the initial information," he said.
"An official investigation committee will be formed to reveal all the details behind the explosion. The Palestinian intelligence headquarters in Gaza are under high security and equipped with many observation cameras.
"Therefore, the actual reasons behind the explosion will be later proved by sound and picture."
Abu Rajab in hospital after an
earlier attempt on his life
The wounded were driven to the nearby Dar al-Shifaa hospital in cars of the intelligence service. Abu Rajab underwent surgery and was later transferred to an Israeli hospital.
Fellow agents fired in the air from the windows of the vehicles to clear the road to the hospital.
The blast came at a time of growing tension between the Hamas government and the Palestinian security forces loyal to Mahmoud Abbas, the president and Fatah movement leader.
The Palestinian interior ministry said it would hold a press conference later in the day to give more details.
No one has so far claimed responsibility for the explosion.