The Israeli army struck the Ramada hotel building in Raouche in the early hours of Sunday.
It marked the first strike on central Beirut since the conflict resumed last week, in a sharp expansion of Israel's campaign on Lebanon.
The attack, which Israel said struck Iranian commanders operating in the Lebanese capital, killed at least four people and wounded 10 others, according to Lebanon’s Health Ministry.
Israel said it struck key commanders of Iran's elite Quds Force of the Revolutionary Guards but did not name them.
“The commanders of the Quds Force's Lebanon Corps operated to advance terror attacks against the state of Israel and its civilians, while operating simultaneously for the IRGC in Iran,” the Israeli army said.
The four-star hotel is on the bustling Corniche, a busy promenade along the Mediterranean, where some displaced families have set up tents as Lebanese authorities struggle to cope with hundreds of thousands fleeing Israeli bombardment.
Located near busy restaurants and shops, it lies outside Hezbollah’s traditional areas of influence, which Israel has increasingly attacked as it broadens its military operations across Lebanon.
The Ramada was housing families displaced by the war. It is the second time that Israel has attacked a hotel sheltering displaced people.
Last year, a pattern of strikes attacking displaced families caused fears about hosting displaced people and fuelled tension against the Shiite community as a whole.
The latest attack caused damage to the hotel, leaving a blackened hole in a room on one of the lower floors. A reporter from The National heard a loud blast echo across Beirut and saw several ambulances rushing to the scene, with sirens filling the capital in the middle of the night.
Earlier this week, the Israeli army warned Iranian officials in Lebanon to leave the country immediately or risk being attacked.
Following the warning, dozens of officers from Iran's Revolutionary Guards reportedly left Beirut in the past few days, according to US news outlet Axios.
Israel's military campaign has killed nearly 300 people and forced hundreds of thousands of Lebanese from their homes. Conflict in the country resumed amid war between the US and Israel against Iran.
