In this paper the problem of a plane strain hydraulic fracture propagating in an elasto-plastic material is analyzed. A new stress redistribution model for the proximity of the fracture tip is formulated and a resulting plasticity-dependent crack propagation condition is introduced. A modified variant of the KGD problem that accounts for the plastic deformations in the near-tip zone only is proposed. It is demonstrated that this model can be a credible substitute for the full elasto-plastic hydraulic fracture problem in the case of moderate plastic deformation. The crack-tip shielding effect introduced by the plastic deformation is quantified.