The Gaza Strip's ruling Hamas movement has cancelled its anniversary rally, saying it was inappropriate to celebrate at a time of deep economic woes in the territory.

It is the first time the Islamic militant group has cancelled the rally since seizing power six years ago. Hamas has used the elaborate annual commemoration of its December 1987 founding to demonstrate its control, with large military-style gatherings attended by hundreds of thousands of people.

The decision illustrates how hard the Gaza economy has been hit since Mohamed Morsi, Egypt's Islamist president and Hamas's main patron, was ousted in a military coup in July. Morsi hails from the Muslim Brotherhood, Hamas's parent movement, and sought to improve ties with the Islamic militant group.

Egypt's new military government has imposed tough border restrictions, including the destruction of smuggling tunnels that long sustained the Gaza economy and provided a key source of income for Hamas.

Hamas official Ashraf Abu Zayed said funds allocated for the celebration, scheduled for next week, would be used "to alleviate the suffering" of the people of Gaza.

"The decision to cancel the rally is a message of solidarity recognising the difficult circumstances experienced by our people in Gaza," Abu Zayed said.

Egypt's border crackdown, accompanied by Israeli restrictions on Gaza, has caused power cuts, fuel shortages and the near-collapse of the construction industry, a major employer in Gaza. Last month, power shortages caused a major spill at Gaza's main sewage treatment plant, flooding streets in rancid waste.

According to the UN, unemployment has risen to about 30% since the tunnels were closed. Nearly half of Gaza's 1.7 million people receive food aid from the UN Relief and Works Agency for Palestine Refugees.

Hamas seized power in 2007 after taking the territory from the forces of the western-backed President Mahmoud Abbas. With Abbas now governing from the West Bank, the takeover has left the Palestinians divided between two governments. Repeated attempts at reconciliation have failed.

Despite its difficulties, Hamas maintains its opposition to Israel and says it is committed to destruction of the Jewish state.

Hamas, which has killed hundreds of Israelis in suicide bombings and other attacks, battled Israel to a stalemate during eight days of fighting a year ago. It maintains an arsenal of thousands of rockets and other weapons.

Abu Zayed said although the celebrations had been cancelled, Hamas "didn't stop the preparation and processing for the battle of liberation and victory, God willing".