Israeli Prime Minister Benjamin Netanyahu said he was prepared to "increase the force of our attacks" if Palestinians did not stop launching kites and balloons carrying containers of burning fuel and explosive devices over the Gaza-Israel border.
Israeli authorities say the hundreds of kites and balloons sent over the border fence from Gaza have caused significant damage to farms in the area.
Israel also chose to reduce the Gaza fishing zone from six to just three nautical miles.
Liberman's office said the restrictions were toughened due to "continued terror attempts" by Hamas, which is allowing, encouraging and participating in flying incendiary devices and bombs into Israel with balloons and kites. An ultra-nationalist Israeli group has published a video accusing the heads of four Israel's leading human rights organisations, including "Breaking the Silence", of being "foreign agents" funded by Europe and supporting Palestinians "involved in terrorism".
The steps come as the United Nations and Egypt push for a ceasefire between Israel and Hamas in the Gaza Strip, and as Israel prepares to go to war - if necessary - to prevent Hamas and the Islamic Jihad from launching rockets and incendiary devices into southern Israel.
Israel has further tightened its blockade on the Gaza Strip, preventing gas and fuel deliveries through its only commercial crossing with the Palestinian besieged enclave after scores of kites carried firebombs across the border to burn Israeli farmland.
Since then, 55 percent of goods can no longer enter Gaza under the new restrictions, exacerbating already dire humanitarian conditions.
In the other direction "more than 60 rockets" were fired at southern Israel from Gaza, the Israeli military said, of which "approximately 10 rockets were intercepted".
Monday's incident prompted one Israeli to ask, "Is there no end to the cruel schemes?" "The world must not remain silent in the face of these crimes against humanity", read a Hamas statement.
Almost 2,500 acres of agricultural land, national parks and nature reserves have been set alight by incendiary devices floated across from the Gaza Strip over the past two months.
However, it appeared that neither Israel nor Hamas were seeking further escalation and there were no reports of serious casualties on either side of the border. Also Monday evening, Egypt announced that it would temporarily close the Rafah crossing in the wake of a technical malfunction. Israel says the naval blockade is necessary to protect its citizens from weapon smuggling.