The weapon, used by British and US forces in Iraq, can cause horrific burns but is not illegal if used as a smokescreen, The Times reported.
As the Israeli army stormed to the edges of Gaza City and the Palestinian death toll topped 500, the shells could be seen spreading tentacles of thick white smoke to cover the troops' advance.
"These explosions are fantastic looking, and produce a great deal of smoke that blinds the enemy so that our forces can move in," said one Israeli security expert.
Burning blobs of phosphorus would cause severe injuries to anyone caught beneath them and force would-be snipers or operators of remote-controlled booby traps to take cover. Israel admitted using white phosphorus during its 2006 war with Lebanon.
The use of the weapon in the Gaza Strip, one of the world's mostly densely population areas, is likely to ignite yet more controversy over Israel's offensive, in which more than 2,300 Palestinians have been wounded, the paper reported.
The Geneva Treaty of 1980 stipulates that white phosphorus should not be used as a weapon of war in civilian areas, but there is no blanket ban under international law on its use as a smokescreen or for illumination.
The Israeli military last night denied using phosphorus, but refused to say what had been deployed.
"Israel uses munitions that are allowed for under international law," said Captain Ishai David, spokesman for the Israel Defence Forces.
"We are pressing ahead with the second stage of operations, entering troops in the Gaza Strip to seize areas from which rockets are being launched into Israel," The Times quoted him, as saying.
The civilian toll in the first 24 hours of the ground offensive - launched after a week of bombardment from air, land and sea- was at least 64 dead.
The Israeli army also suffered its first fatality of the offensive when one of its soldiers was killed by mortar fire. Mortars, mines and sniper fire wounded more than 30 soldiers.&13;&13;