Defence Minister Israel Katz said evacuations would take place from areas where there was fighting, while urging Gazans to eliminate Hamas and return Israeli hostages as the only way to end the war.
He said the operation would clear out militants and infrastructure "and seize large areas that will be added to the security zones of the State of Israel".
The Israeli military had already issued evacuation warnings to Gazans living around the southern city of Rafah and towards the city of Khan Younis, telling them to move to the Al-Mawasi area on the shore.
The Palestinian civil defence agency said at least 12 bodies had been recovered in Khan Younis after a wave of air strikes overnight, and Palestinian radio reported that the area around Rafah was almost empty following the evacuation orders.
Katz's statement on Wednesday did not make clear how much land Israel intended to seize or whether the move represented a permanent annexation of territory.
According to the Israeli rights group Gisha, Israel has already taken control of about 17 per cent of Gaza, as part of a buffer zone around the edges of the enclave.
At the same time, Israeli leaders have said they plan to facilitate voluntary departure of Palestinians from the enclave after US President Donald Trump called for it to be permanently evacuated and redeveloped as a coastal resort under US control.
Katz's remarks came after Israeli Prime Minister Benjamin Netanyahu repeated calls for Hamas to disarm and said the application of military pressure was the best way to get back the remaining 59 hostages.
Israeli leaders have been encouraged by signs of protest in Gaza against Hamas, the militant group that has controlled the enclave since 2007, and the expanded operation appeared at least partly aimed at increasing civilian pressure on its leaders.
"I call on the residents of Gaza to act now to eliminate Hamas and return all the kidnapped," Katz said in his statement.
"This is the only way to end the war."
Israel resumed air strikes on Gaza in March and sent ground troops back in after two months of relative calm following a US-backed truce to allow the exchange of hostages held by Hamas for Palestinian prisoners in Israeli jails.
Hundreds of Palestinians have been killed since the resumption of the strikes and Israel has also cut off aid to the enclave, saying much of it was taken by Hamas.
Efforts led by Qatari and Egyptian mediators to get talks aimed at ending the war back on track have failed to make progress and the military's return to Gaza has fuelled protests in Israel by families and supporters of some of the hostages.
As the operation in Gaza has escalated, Israel has also hit targets in southern Lebanon and Syria, with a strike on a Hezbollah commander in southern Beirut on Tuesday further straining ceasefire agreements that largely halted fighting in January.
Israel invaded Gaza following the devastating attack on communities in southern Israel by thousands of Hamas-led gunmen that killed 1200 people, according to Israeli tallies, and saw 251 taken as hostages into Gaza.
The Israeli campaign has killed more than 50,000 Palestinians, according to Palestinian health officials, and forced almost the entire population of 2.3 million from their homes.
