The Bolivian president also dismissed the United Nations and its "Insecurity Council" for its "lukewarm" response to the crisis and said the general assembly should hold an emergency session to condemn the invasion.
"Considering these grave attacks against ... humanity, Bolivia will stop having diplomatic relations with Israel," Morales told diplomats in the Bolivian capital, La Paz.
He also said that Shimon Peres, the Israeli president, should be stripped of
his Nobel Peace Prize for failing to stop the invasion.
At least 1,033 Palestinians have now died in Israel's offensive in Gaza, around 40 per cent of whom were civilians, aid agencies and Palestinian medics say.
Roberto Nelkenbaum, the Israeli consul in La Paz, told the Reuters news agency that he was "surprised and sad" after hearing Morales's comments in local media.
He said that the two countries have had good diplomatic relations for more than 50 years.
Thirteen Israelis have also died since the assault began, four from rocket fire from Gaza.