Israel said it was returning fire Sunday after anti-tank missiles were launched at its territory from Lebanon, raising fears of a serious escalation with Hezbollah after a week of rising tensions.
Hezbollah claimed it destroyed an Israeli military vehicle and killed and wounded those inside, but Israel had not commented.
Israel's occupation army said in a statement that "a number of anti-tank missiles were fired from Lebanon towards an (Israeli military) base and military vehicles."
"A number of hits have been confirmed," it said.
It was "responding with fire towards the sources of fire and targets in southern Lebanon."
Hezbollah said in a statement its fighters "destroyed a military vehicle on the road to the Avivim barracks (in northern Israel), killing and wounding those inside."
Lebanon's state-run NNA news agency reported Israeli fire in the area of Maroun al-Ras, near the border.
After the initial reports of fire from Lebanon, an Israeli military spokesman called on Israelis living within four kilometres (2.5 miles) of the Lebanese border to remain at home and prepare shelters.
Tensions have risen in the last week between Israel and its enemy Hezbollah, the Lebanese Shiite movement backed by Iran.
Hezbollah chief Hassan Nasrallah said Saturday the group's response to an alleged Israeli drone attack on the group's Beirut stronghold had been "decided".
The pre-dawn August 25 attack involved two drones , one exploded and caused damage to a Hezbollah-run media centre and another crashed without detonating due to technical failure.
Israel has not claimed responsibility for the incident.
The attack in Lebanon came just hours after Israel launched strikes in neighbouring Syria to prevent what it said was an impending Iranian drone attack on the Jewish state.
Israel has carried out hundreds of strikes in Syria since the civil war began there in 2011 against what it says are Iranian and Hezbollah sites.
Iran and Hezbollah, along with Russia, have backed Syrian President Bashar al-Assad in his country's civil war.
But a drone attack by Israel inside Lebanon would mark a departure -- what Nasrallah had called the first such "hostile action" since a 2006 war between them.
On Thursday, Israel accused Iran of collaborating with Hezbollah to build precision-guided missiles in Lebanon.
According to the UK's Times newspaper, the drones in the August 25 incident fell near installations manufacturing a fuel used by precision missiles.
Sunday's escalation comes just ahead of Israel's September 17 election.
Israeli Prime Minister Benjamin Netanyahu is seen as wanting to avoid a major conflict before then due to the political risk involved, but he has also warned Lebanon and Hezbollah to "be careful."
Addressing Nasrallah, Netanyahu told a conference in Jerusalem on Tuesday that "he knows very well that the state of Israel knows how to defend itself well, and to repay its enemies".
He suggested that Nasrallah "calm down".
But while Nasrallah has issued warnings to Israel, Hezbollah's number two Naim Qassem in an interview with Russia Today last week played down talk of a "war atmosphere."
"The atmosphere is an atmosphere of response to an aggression," he said.
A 2006 war between Israel and Hezbollah took the lives of 1,200 Lebanese, mostly civilians, and more than 160 Israelis, mostly soldiers.