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The US ambassador to Israel David Friedman has blamed Palestinian authorities for the failure of peace efforts, after an Israeli settler was killed in the occupied West Bank.

Friedman, a supporter of West Bank settlements, accused a Palesintinian of carrying out the attack late on Tuesday.

"An Israeli father of six was killed last night in cold blood by Palestinian terrorists," Friedman said on Twitter on Wednesday after a 35-year-old was killed near an Israeli settlement near Nablus.

"Hamas praises the killers and PA (Palestinian Authority) laws will provide them financial rewards. Look no further to why there is no peace."

Friedman was referring to payments to the families of imprisoned Palestinians, including those who have carried out attacks against Israelis, and to those killed while carrying out attacks.

Hamas, a Palestinian Islamist group, praised the attack.

It comes a month after US President Donald Trump recognised Jerusalem as Israel's capital, angering the Palestinians and sparking clashes across the West Bank and Gaza.

In response, the Palestinian foreign ministry accused Friedman of a "prejudiced and selective attitude towards the occupation, settlement construction, and the Palestinian just and legitimate national rights".

It pointed to Friedman's silence over what Palestinians say was the killing by Israeli forces of a disabled Palestinian man during recent protests and clashes on the Gaza border and other killings as evidence of his bias.

"Friedman's remarks and positions further complicated the road towards the peace process and the resumption of negotiations between the Israeli and Palestinian sides, specifically after President Donald Trump's declaration on Jerusalem," the statement added.

Trump's December 6 announcement that he would move the US embassy from Tel Aviv to Jerusalem enraged the Palestinians.

They said they will no longer engage with the Trump administration's push for fresh peace talks.

Israeli officials say payments to the families of attackers encourages further violence and have regularly called for a halt to them.

On Tuesday the Israeli Ministry of Defence said the Palestinian Authority had paid out 1.2 billion shekels ($350 million) last year in such payments.

For Palestinians, such payments are a key source of income for families who have in many cases lost their main breadwinner.

Qadura Fares, head of the Palestinian Prisoners Club, did not dispute the figures but said the Palestinian people overwhelmingly supported the payments.

"We stress the commitment of the Palestinian people to the prisoners and families of the prisoners. This is a legal, moral and humanitarian obligation."