Al-Shifa Hospital, which is also tackling power cuts and a lack of fuel, is "nearly a cemetery", the World Health Organization (WHO) has warned.
The hospital's manager said it was under a "blockade", and that dogs had started eating corpses.
The area around the hospital has seen intense fighting in recent days.
US President Joe Biden said he hoped to see "less intrusive action" at the hospital, which he said "must be protected".
Gaza City has seen an intensification of fighting between Israeli and Hamas forces in recent days, much of which has been taking place in streets close to the hospital. There have been reports of tanks and armoured vehicles being within metres of the hospital gate.
Israel accuses Hamas of operating a command-and-control centre in tunnels underneath the hospital, which Hamas and the hospital deny. It also accuses Hamas, which governs the Gaza Strip, of "preventing humanitarian solutions".
Israel's army has also said that while there are clashes close to Al-Shifa, there is no shooting at the hospital itself nor a siege, and that anyone wanting to leave can do so.
Christian Lindmeier, a spokesman for the WHO, said about 600 people remained in the hospital, with others sheltering in hallways.
"Around the hospital there are dead bodies which cannot be taken care of or not even be buried or taken away to any sort of morgue," he said. "The hospital is not working at all any more as it should. It's nearly a cemetery."
The Hamas-run health ministry has said there are at least 2,300 people still inside the hospital - up to 650 patients, 200 to 500 staff and around 1,500 people seeking shelter.
Doctors have also spoken of bodies piling up and rotting at the hospital, and Dr Mohamed Abu Selmia, Al-Shifa's manager, said there were about 150 bodies decomposing, "leaving unpleasant odours".
He told the BBC the Israeli authorities had still not granted permission for those bodies to leave the hospital to be buried, and that dogs had now entered the hospital grounds and started eating the bodies.
An image of newborns after being taken off incubators in Gaza's Al-Shifa Hospital due to power outages
There are also concerns about the fate of dozens of premature babies that are no longer able to stay in their incubators due to the power cuts.
Dr Selmia said seven of those babies have now died due to a lack of oxygen.
He said negotiations had been conducted with Israeli authorities to try to evacuate the babies, but that no agreement had been reached.
Mark Regev, a senior adviser to Israeli Prime Minister Benjamin Netanyahu, said Israel was offering "practical solutions" to evacuate the babies, but accused Hamas of not accepting proposals.
"They don't take the fuel that was offered for their generators. They don't support the movement of babies out in ambulances, so of course they're stuck there because [Hamas] want those terrible photographs," he said. He also accused Hamas of turning the hospital "into a war zone" by building tunnels underneath it. Hamas denies using the hospital for its operations, while doctors inside insist there is no Hamas presence there.
As well as Al-Shifa, other hospitals across the Gaza Strip have reported widespread issues, including a lack of supplies and power due to the fighting and the blockade Israel has enforced on the territory since Hamas launched its attacks on Israel on 7 October.
-- Courtesy of BBC News