Hamas security forces then sealed off the area.
The plant has been funded by the World Bank, backed by governments within Europe and the European Union, as a lack of safe drinking water is a serious issue in the Gaza Strip.
Hamdallah described the bombing as an "assassination attempt".
He said seven of his guards were wounded in the attack and they were being treated in hospitals across Ramallah.
No one immediately claimed the attack.
Radical Islamists opposed to Hamas also operate within Gaza and have regularly been behind unrest there.
The prime minister made a statement shortly after the explosion, saying it would "not deter from seeking to end the bitter split. Hamas must remove itself from the investigation", The Times of Israel reported. Footage of the area shortly after the blast indicated that the bomb was small but it appeared timed to hit Mr Hamdallah's convoy.
In November, Hamas handed over control of Gaza's border crossings to the Palestinian Authority.
The assassination attempt, he added, was in "concordance" with all attempts to stop the PA government from assuming its responsibilities in the Gaza Strip.
Hamdallah's government is recognised by the worldwide community, while Hamas is blacklisted as a terrorist organisation by the European Union and the United States.
Nauert's remarks came as the White House held a conference on the humanitarian crisis in Gaza, which has been under a land, sea, and naval blockade for more than a decade. The Palestinian Authority, which was also angered by Trump's Jerusalem decision, has refused to participate in Tuesday's White House meeting or meet with Trump's Middle East envoys. It has been four years since the project has been delayed.
For the last decade, the two parts of the Palestinian territories, the West Bank and the Gaza Strip, were ruled by mutually antagonistic groups that only recently agreed to bury their differences.
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