Emilio Morenatti, a Spanish national, was seized early on Tuesday morning from outside the building where he and most foreign AP employees in Gaza live, witnesses said.
Hamdan, Morenatti's driver and translator, told AP that four armed men grabbed his keys and phone and told him to turn away, pressing a gun to his head and threatening to harm him if he moved.
They then grabbed Morenatti and forced him into a car before driving off.
There was no immediate claim of responsibility for the incident and Palestinian security sources said that they were searching the area.
Ghazi Hamad, spokesman for the Hamas-led Palestinian government, condemned the kidnapping, saying it "damages the reputation of the Palestinian people".
"The government will take all steps to ensure his release," Hamad said.
"Our main concern now is for his safety"
Tom Curley, AP president and CEO
Meanwhile, Saeb Erekat, allied to Mahmoud Abbas, the Palestinian president and member of the moderate Fatah Party, also condemned Morenatti's kidnapping, saying it "harms Palestinian interests".
"President Abbas is personally following the matter. We have been in touch with the government, the presidential guards and other security branches in order to acquire his immediate release," Erekat said.
Tom Curley, the AP president and chief executive officer in New York, said the company was doing everything to find Morenatti.
"We are in contact with Palestinian officials and leaders to learn more, and to try to obtain his release. Our main concern now, however, is for his safety," Curley said.
The news agency said that Morenatti, 37, and from Jerez in Spain, has been working for the AP in Jerusalem since April 2005.
Previously, Morenatti covered the war in Afghanistan for AP and also worked for EFE, the Spanish news agency.
Earlier this month, unidentified fighters kidnapped a US student volunteer in the West Bank but released him within hours.
Two journalists working for the US Fox News channel were abducted in the Gaza Strip in August.
They were held by Palestinian fighters for two weeks before being freed.