The Palestinian health ministry said the man was one of at least six Palestinians shot during clashes in Mughayir village near Ramallah.
It named him as Hamdi Nassan, 38, saying he was hit with live ammunition in the back.
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The Israeli army said in a statement that initial indications were that a settler from the nearby Israeli settlement of Adei Ad had a "physical confrontation" with several Palestinians and was slightly hurt.
"Shortly thereafter, a conflict erupted between Israeli civilians and Palestinians in the area, in which live rounds were fired by the civilians," the statement said.
"One Palestinian died and several others are injured."
It said that troops and border police used "riot dispersal means" to break up the disturbance and that the incident would be investigated.
Amin abu Alya, head of the Mughayir village council, said settlers opened fire before the Israeli army moved in.
"At the beginning it was settlers shooting, and then the army came and fired tear gas," he told AFP by phone.
Asked who shot Nassan he said it was settlers.
"We hold the Israeli government fully responsible for this new crime," senior Palestinian official Saeb Erekat wrote on Twitter.
Israeli settlers have attacked the village of Al Mgheir, #Ramallah district. At least 30 Palestinian civilians have been injured, 5 of them in difficult condition. Hamdi Na’asan has been killed by Israeli fire.
— Dr. Saeb Erakat الدكتور صائب عريقات (@ErakatSaeb) January 26, 2019
We hold the Israeli government fully responsible for this new crime
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"Settler terrorists continue to attack Palestinian civilians under the protection of the Israeli army."
Settler terrorists continue to attack Palestinian civilians under the protection of the Israeli army. International protection for #Palestine is an urgent demand; We reiterate our call upon @IntlCrimCourt to take action; justice, ending impunity = international responsibility.
— Dr. Saeb Erakat الدكتور صائب عريقات (@ErakatSaeb) January 26, 2019
Mughayir village has been the scene of a number of clashes between Palestinians and Israeli settlers in recent months.
Official Palestinian news agency said President Mahmud Abbas "condemns the aggression of settler gangs on the village of Mughayir".
Israel killed today 38-year-old Hamdi Na’asan, a husband and father of four children, during an attack by its occupying soldiers and settlers on the Palestinian village of al-Mughayyir to the east of Ramallah. At least thirty other Palestinian civilians were injured. #Palestine pic.twitter.com/a6IZeovHvi
— Palestine PLO-NAD (@nadplo) January 26, 2019
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