Israel has repeatedly complained that Egypt has not done enough to prevent smuggling into Gaza through such tunnels, which it says are used to supply Hamas with explosives and arms.
But in recent months Cairo has destroyed large numbers of tunnels, using detection equipment provided by the United States.
The Egyptian move to stop the smuggling have been greeted with anger in the Gaza Strip, which Israel has closed off to all but limited basic supplies since Hamas seized full control after forcing out security forces loyal to Mahmoud Abbas, the Palestinian president, in June 2007.
Hundreds of Palestinians rallied in Rafah near the Egyptian border on Monday to protest against the construction.
Sami Abu Zuhri, a Hamas spokesman, told Al Jazeera on Monday that the construction of the wall would create a "real disaster in the Gaza Strip".
"We are not talking about borders between Egypt and Israel; we are talking about steel borders between two peoples, one of these two peoples is under siege," he said.
"There are Arab League resolutions that call for breaking the siege imposed on the Gaza Strip. Now, instead of taking practical steps to break this siege, we get surprised with this steel wall.
Abu Zuhri said Hamas officials have contacted Egyptian officials on the matter.
"They [Egyptian officials] have at first denied this, but it can no more be denied because it has been confirmed by what we see and by the definite information we have received," he said.
Meanwhile, a group of 16 human rights and aid groups has criticised the international community for failing to compel Israel to bring an end to the blockade of the Gaza Strip.
"Today, because of the closure, large-scale reconstruction remains impossible"
International Committee of the Red Cross
"They have wrung hands and issued statements, but have taken little meaningful action to attempt to change the damaging policy that prevents reconstruction, personal recovery and economic recuperation," Jeremy Hobbs, Oxfam International's executive director, said in a statement.
The Israeli authorities have allowed only 41 lorryloads of construction materials into Gaza since the end of its 22-day military offensive last January, the report said.
Thousands of such deliveries would be needed to repair homes and other buildings destroyed by the air, ground and naval bombardment.
"Today, because of the closure, large-scale reconstruction remains impossible," the International Committee of the Red Cross said in a statement.
"The population lives under constant threat of a collapse of water, sanitation and electricity services."
A group of international activists has said it will go ahead with next week's planned march against the blockade of the Gaza Strip, despite Cairo banning any demonstration.
"Our efforts and plans will not be altered at this point. We have set out to break the siege of Gaza and to march in Gaza on December 31 against the international blockade," organisers of the Gaza Freedom March said on their website.
"We are continuing the journey."
The Egyptian foreign ministry on Monday rejected a request by organisers to use the Rafah border crossing, the only entry into Gaza that bypasses Israel.
It warned that "any attempts to violate the law or public order by any group, whether local or foreign, on Egyptian soil will be dealt with in conformity with the law".
Around 1,300 international delegates from 42 countries have signed up to join the Gaza Freedom March which was due to enter Gaza via Egypt during the last week of December.