The Palestinian was moderately wounded in the incident at the Gush Etzion junction, a major intersection near a large bloc of Israeli settlements.
The reserve officer was a member of the air force and was wearing his uniform at the time, a military spokeswoman said.
It was not clear if he was carrying a weapon.
The officer, named as Captain Eliav Gelman, 30, was on duty but not stationed in the area and was likely on his way elsewhere, the spokeswoman said.
"An assailant attempted to stab Captain Gelman at the Gush Etzion junction," the military said in a statement.
"(Military) forces at the scene responded, and in order to thwart the attack fired towards the assailant. Initial investigation suggests that Captain Gelman was injured as a result of the fire."
It said he later died of his injuries.
A wave of Palestinian knife, gun and car-ramming assaults that erupted in October has claimed the lives of 28 Israelis, as well as an American, a Sudanese and an Eritrean.
The Etzion bloc of Jewish settlements, in the southern West Bank between Bethlehem and the flashpoint city of Hebron, has been a focal point of the unrest.
Gelman was from Karmei Tzur settlement, which is part of the Etzion bloc.
Gush Etzion junction is a major hub for hitchhiking soldiers and settlers on the road between Hebron and Jerusalem.
Gelman was the second soldier killed in a week.
On February 18, off-duty soldier Tuvia Weissman, 21, a dual Israeli-US citizen, was stabbed to death at a supermarket in an Israeli industrial zone in the West Bank.
Many analysts say Palestinian frustration with Israeli occupation and settlement building in the West Bank, the complete lack of progress in peace efforts and their own fractured leadership have fed the unrest.
Israel blames incitement by Palestinian leaders and media as a main cause of the violence.
