Palestinian security sources said the clash was started by the settlers, after which the army intervened and fired at a group of Palestinians yesterday.
The Palestinian Red Crescent identified the dead man as a 22-year-old from the town of Urif, adding that at least one other person was wounded.
The Israeli army said Palestinians from Urif had approached Yitzhar settlement, sparking "a confrontation between Palestinian and Israeli civilians".
As soldiers arrived, "a riot was instigated, during which troops used riot dispersal means and fired live rounds", a military spokesman told AFP.
Tensions have risen since US President Donald Trump's recognition in December of Jerusalem as Israel's capital -- a decision that has infuriated Palestinians.
Israel seized mainly Arab east Jerusalem in the 1967 Six-Day War and later annexed it in a move never recognised by the international community.
At least 31 Palestinians and two Israelis have been killed since Trump's announcement.
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