The incident happened at the Israeli settlement of Maale Levona, not far from the Palestinian city of Nablus where troops are searching for the suspect in the killing of two Israelis who were shot dead nearby on Saturday.

The army said a number of "masked suspects" were seen in the area of Maale Levona at around 03:00 am on Sunday.

"The soldiers opened fire according to standard operating procedures, during which one of the suspects was injured," the army said.

"It was later revealed that the suspects are Israeli settler who were masked."

The army did not provide further details and said the incident was under investigation.

The shooting occurred a day after two Israelis were shot dead at a car wash in the town of Huwara, just south of Nablus.

Troops have been searching several villages including Aqraba and Beita near Nablus, witnesses told AFP.

Israel has occupied the West Bank since the Six-Day War of 1967.

Excluding annexed east Jerusalem, the territory is home to nearly three million Palestinians and around 490,000 Israelis who live in settlements considered illegal under international law.

Huwara, a Palestinian town, has seen a number of  Jewish settlers' attacks targeting Palestinians in the town and surrounding villages.

At least 218 Palestinians have already been killed in violence linked to the Israeli-Palestinian conflict this year.

Some 30 Israelis, one Ukrainian and one Italian have also been killed, according to an AFP tally compiled from official sources on both sides.

They include, on the Palestinian side, combatants as well as civilians and, on the Israeli side, three members of the Arab minority.