At least 52 Palestinians were killed by Israeli forces during clashes at the Gaza border on Monday.
The demonstrations were taking place hours before the new US embassy was due to officially open in Jerusalem, reports CNN.
The Palestinian Ministry of Health announced that Monday's death toll is the largest number of fatalities suffered in one day since the latest round of protests began more than six weeks ago.
The Palestinian Health Ministry said more than 1,600 had suffered injuries, and that many of the dead had not yet been identified.
Witnesses near the Gaza-Israel border heard gunfire in spurts and saw a tank moving towards the fence in the border area of Malaka.
Israeli drones also dropped tear gas over a crowd of protesters.
The Israel Defense Forces (IDF) released a statement Monday accusing the Palestinian militant group Hamas, which controls Gaza, of "leading a terrorist operation" and inciting protesters who had amassed by the border fence with Israel to conduct what Israel described as terror attacks.
The IDF estimated that around 35,000 people -- who it describes as "violent rioters" -- had assembled in 12 different locations along the border fence between Gaza and Israel and thousands more were gathered in a tent city about a kilometre from the border.
The military said the protesters threw Molotov cocktails, burned tires, and stones at Israeli soldiers positioned along the fence.
The IDF also says it foiled an attack by three armed Palestinians near Rafah, close to the border with Egypt, during "a particularly violent demonstration."
The Palestinian Health Ministry said 443 injuries were caused by live ammunition, 320 by tear gas, and three by rubber-coated bullets.
The first victim to be named was Anas Hamdan Qdeih, a 21-year-old, who was shot dead by Israeli forces east of Khan Younis, according to the Palestinian Health Ministry.
Earlier, the Israeli army air-dropped leaflets over Gaza warning people not to approach the fence that separates Gaza from Israel.
More than 80 people have been shot and killed by Israeli soldiers since the latest wave of protests began in March, according to a CNN count based on the Palestinian Ministry of Health figures.
Demonstrators say they want to highlight their right to return to homes lost by their ancestors during the war that accompanied the founding of the state of Israel in 1948.
Israel says the demonstrations are orchestrated by Hamas and has insisted its forces are acting "according to standard operating procedures."