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A Palestinian man accused of shooting dead an Israeli rabbi was killed on Tuesday in the occupied West Bank, after Israeli forces destroyed a house during a military raid.

Mohamed Faqih, who was allegedly behind the shooting of Rabbi Michael Mark earlier this month, was killed during an exchange of fire with Israeli soldiers, an army statement said.

The 48-year-old Rabbi was killed and three members of his family were injured when suspected Palestinian gunmen opened fire on his car, south of Hebron.

The circumstances of Faqih's death are still unknown with Palestinian media saying civilians were injured in the Israeli assault and that ambulances were denied access to the site by Israeli soldiers.

Tuesday night's shoot out took place in the village of Surif, north of the West Bank city of more than 200,000 Palestinians, the army said.

The area, where several hundred Jewish settlers live in a tightly guarded enclave in the heart of the city, has been a persistent source of tensions.

An AFP photographer at the scene said Israeli soldiers surrounded Faqih's house in Surif for several hours before launching an assault that severely damaged the building.

Soldiers carried away Faqih's body and arrested three people, who were led away their eyes covered and loaded into military vehicles.

The army said they were three Palestinians with links to the 1 July attack, and "members of a terrorist cell with ties to Hama", the Islamist movement which runs Gaza.

Israel's Shin Bet security service, 29-year-old Faqih had served time in Israeli jail for links to the Islamic Jihad movement

Violence in Israel and the Palestinian territories since October last year has killed at least 215 Palestinians, 34 Israelis, two Americans, an Eritrean and a Sudanese.

Most of the Palestinian victims were shot dead during protests and clashes, while some were killed by Israeli airstrikes in the Gaza Strip.

Palestinians say the rise in knife attacks on Israeli soldiers is rooted in frustration stemming from nearly five decades of Israeli military occupation.