Palestinian residents named the man as Saleh Yassin, 27, a Palestinian intelligence officer. Local hospital staff said he had been shot in the back.
The Israeli army said Yassin had fired at troops when they came to arrest him in the town of Qalqilya and that they shot back.
Yassin was wanted by Israel because he had "opened fire towards (Israeli) soldiers on numerous occasions in recent weeks," an army statement said. It added that a weapon and ammunition had been found at the scene.
Yassin was the second Palestinian to be killed by Israeli troops during an arrest raid in the West Bank since Wednesday, when soldiers shot and killed Nafea' al-Saadi, 23, in town of Jenin. Residents said he was an Islamic Jihad militant.
The Israeli army said their forces opened fire after coming under attack during the Jenin arrest raid. A number of other Palestinians were wounded in subsequent stone-throwing clashes with the troops.
Palestinian President Mahmoud Abbas issued a statement condemning the "murder crimes committed by Israeli army forces".
Deadly violence in the West Bank has increased in recent months and at least 19 Palestinians and four Israelis have been killed since U.S.-backed Israeli-Palestinian peace talks resumed in July after a three-year break.
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On Wednesday, chief Palestinian negotiator Saeb Erekat said the talks could take up to one more year to complete if they can reach a broad framework accord in the coming weeks.
Abbas adviser Nabil Abu Rdaineh said that Israel's West Bank actions jeopardize the peace talks and called for international intervention "to stop Israeli practices that will keep us locked in tension and violence."
(Writing by Ori Lewis; additional reporting by Ali Sawafta in Ramallah; editing by Ralph Boulton)
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