Moshe Chaimovitz, head of the Israeli Agricultural Ministry's veterinary service, told Reuters that tests showed the presence of H5N1 at Kibbutz Kerem Shalom, near Israel's border with the Gaza Strip and Egypt.
''We are checking into how the outbreak occurred,'' he said.
Israel has culled more than 1.2 million turkeys and chickens in several other farms after detecting the H5N1 virus for the first time in Israel earlier this month. There have been no human cases.
Agriculture Minister Zeev Boim said on Sunday that the disease had been eradicated, but that another flare-up was possible. The Israeli government approved compensation of 15 million shekel to farmers of affected areas.
The H5N1 strain has also been confirmed in poultry in the densely populated Gaza Strip.
In a show of cooperation between Israel and the Palestinian Authority, Israel has carried out testing on birds on behalf of the Palestinians and said it would supply Palestinian teams with protective clothing and professional assistance.
Cooperation between Israel and the Palestinian Authority is becoming increasingly rare as the militant Islamist Hamas movement swore in its government this week after winning an election in January.
The H5N1 virus has spread from Asia to the Middle East, Europe and Africa in recent months, with migratory birds seen as the main culprits in spreading bird flu.
Experts fear the virus will mutate into a form that passes easily from person to person, sparking a pandemic in which millions could die.
Bird flu can infect people who come into close contact with infected poultry and has killed around 100 people since late 2003.
Reuters SY BD1726