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Around 3,000 people attended the funeral Sunday of a Palestinian killed the day before in clashes with Israeli civilians near a Jewish settlement in the occupied West Bank.

Hamdi Nassan, 38, died after being shot in the back with live ammunition, according to the Palestinian health ministry.

The Israeli army said clashes had erupted after a "physical confrontation" between residents of Mughayir village near Ramallah and a settler from nearby Adei Ad settlement.

The Israeli civilians opened fire with live rounds, wounding several Palestinians and killing Nassan, it said.

An Israeli army spokesperson did not respond to AFP's questions about the identity of the civilians who had opened fire, or the circumstances of the confrontation. 

On Sunday, mourners called for vengeance as they carried Nassan's body, wrapped in the Palestinian flag and the yellow banner of the Fatah party of president Mahmud Abbas.

Mughayir, a village with around 4,000 residents, is surrounded by four Israeli settlements, which are considered illegal under international law.

"About eight settlers, dressed in white and armed with rifles, arrived from the north of the village," said Ali Hassan, who witnessed Saturday's clashes.

"We didn't know what they wanted, we went to meet them and they started shooting."

He said Nassan was helping evacuate the wounded when he was himself hit, and that Israeli soldiers saw the incident but did not immediately intervene.

Tzuriel Amiur, a spokesman for Adei Ad settlement, said a 19-year-old settler had been "attacked by a group of Palestinians who stabbed him and threw stones at him".

In response, a group of settlers headed for Mughayir, the scene of several clashes in recent months.

According to Amiur, the group were then "ambushed" by as many as 200 Palestinians throwing rocks.

When the army arrived, "civilians and soldiers were afraid for their lives and opened fire", he said.

Amin Abu Alya, head of the Mughayir village council, said Saturday that the settlers had opened fire before the army moved in.

"At the beginning it was settlers shooting, then the army came and fired tear gas," he told AFP by phone.

Asked who shot Nassan, he said it was settlers.

Witnesses said that earlier on Saturday, two settlers had attacked a group of Palestinian farmers who responded by hitting them.

Nearly 450,000 Jewish settlers live in the Israeli-occupied West Bank, which is also home to more than 2.5 million Palestinians.

UN envoy Nickolay Mladenov called the killing "shocking and unacceptable!"

"Israel must put an end to settler violence and bring those responsible to justice," he wrote on Twitter.