An assailant tried to knife an Israeli civilian during the “attempted stabbing attack” at Sde Efraim farm northwest of Ramallah, it said.
“The terrorist was neutralised,” the army added, confirming to AFP that a civilian shot dead the Palestinian.
No one else was wounded in the incident, the army statement said.
An AFP photographer saw Israeli forces preventing a Palestinian ambulance from accessing the site.
The Palestinian health ministry said 42-year-old Tariq Maali was killed “after the occupation (Israel) opened fire on him” near the Palestinian village of Kafr Nama.
According to Israeli anti-settlement movement Peace Now, the farm is known as a wildcat settlement, an outpost not recognised by Israel.
All settlements are deemed illegal under international law, which Israel disputes.
Prime Minister Benjamin Netanyahu plans to pursue a policy of increased settlement expansion in the West Bank, and ultra-Orthodox Jewish parties in his coalition advocate the annexation of some of the territory.
The shooting brings to 18 the number of Palestinians killed so far this month in the West Bank, according to an AFP tally which includes militants and civilians.
The inauguration in December of the most right-wing government in Israel’s history, led by Netanyahu, has sparked fears of a military escalation in the Palestinian territory occupied by Israel since the 1967 Six-Day War.
The majority of the 18 Palestinians killed this year were shot dead by Israeli forces.
Violence this month adds to a toll that left more than 150 Palestinians killed in the West Bank last year, the highest annual toll since United Nations records began in 2005.
At least 26 Israelis and 200 Palestinians were killed across Israel and the Palestinian territories in 2022, according to AFP figures.
The Palestinian health ministry did not provide further details on the circumstances of the latest incident, which comes nearly two years after a guard shot dead another Palestinian man at the same location.
In that February 2021 case, the Israeli army said the man tried to break into a house which a Palestinian official said was built on his land.