There are conflicting reports about the circumstances surrounding the incident near the village of Qusra.
Israel’s military said the settler had opened fired in self-defence after Palestinians threw rocks at a group of hiking settlers and students.
But Palestinian officials said the dead man was a farmer who had been working his land when settlers attacked him.
They identified him as Mahmoud Odeh, 48, and said he was shot in the chest.
The Israel Defense Forces (IDF) said Wednesday’s incident took place while a group of 20 Israeli boys, who were accompanied by adults, went on a hiking trip near Qusra.
“A disturbance broke out… involving dozens of Palestinians, during which one of the hikers shot at the rioters in self-defence,” the Jerusalem Post quoted a statement as saying.
“One of the rioters was hit by gunfire,” the statement added.
Israeli medics treated him at the scene, but he died from his wounds.
The Times of Israel reported that the settler who opened fire was one of two “armed escorts” for the hikers.
A Palestinian Authority official disputed the Israeli military’s account of the incident.
Ghassan Daghlas told the Associated Press that Mr Odeh had been at work when a group of settlers trespassed on to his land and then ordered him to move. When Mr Odeh refused, one of them shot him, Mr Daghlas added.
Palestinian President Mahmoud Abbas condemned the killing of Mr Odeh, calling it a “cowardly act and evidence to the world of the ugly crimes conducted by settlers against unarmed Palestinians”.
The BBC’s Tom Bateman in Jerusalem says tensions between settlers and Palestinians in the occupied West Bank have been on the rise.
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