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The Israel Defense Forces revealed Thursday what it described as an elaborate Hamas tunnel in Gaza that has been "confirmed to have held Israeli hostages." 

Israel’s military said, "Millions of shekels are estimated to have been invested in excavating the tunnel" underneath the southern city of Khan Younis "and equipping it with air ventilation systems, electrical supply and plumbing." 

One million Israeli shekels are worth about $267,000. The IDF wrote in a post on X that the tunnel was found to be "connected to an extensive network beneath a civilian area." 

A video released by the IDF purportedly shows soldiers walking through the tunnel, which has electrical wires leading down multiple staircases. In one room, a toilet and plumbing can be seen. 

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The IDF announced that "after exploring the tunnel it can be said that there were Israeli hostages in it," without elaborating. 

Israel, as of early January, believes more than 130 hostages remain in captivity in the Gaza Strip since Hamas launched its war on Oct. 7. 

Khan Younis is the hometown of Hamas’ Gaza leader Yahya Sinwar, one of the top targets of Israel’s military.  

Israel has been publicly searching for Sinwar in southern Gaza for weeks, with reports suggesting he is somewhere in Hamas' labyrinth of tunnels beneath Khan Younis. 

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Khan Younis tunnel rooms

Two of the rooms the IDF says were found in the tunnel in Khan Younis. (IDF)

The IDF also said Thursday that fighting in Khan Younis is happening above and below ground. 

"So far, over 300 tunnel shafts have been exposed and dozens of tunnels have been destroyed," it added. 

Both Hamas and Israel are currently engaged in negotiations over a potential second round of hostage exchanges.  

Israeli soldier in Hamas tunnel

Israeli soldiers are seen walking through the tunnel in Khan Younis, one of many in the southern Gaza Strip city. (IDF)

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Hamas expressed interest in exchanging 40 Israeli hostages for 120 Palestinians held in Israeli prisons last week, but Israel rejected the deal. 

Fox News’ Anders Hagstrom contributed to this report.