Witnesses reported seeing fragments of what looked like locally produced rockets at the scene, suggesting the house may have been used to store arms.
Islamic Jihad said Fayed was among the dead, and that the group would carry out reprisal attacks against Israel.
Fayed was a senior member of the Islamic Jihad military wing. Israel routinely targets top militants in airstrikes but Israel denied any such strike on Friday.
The three-story house was flattened by the blast and six nearby homes were badly damaged, witnesses said. At least 40 people were hurt, including 12 who were in critical condition.
