A Palestinian was shot dead Friday inside a Jewish settlement in the occupied West Bank that he infiltrated overnight, sources from both sides said.

Khaled Maher Nofal, a 34-year-old family man and Palestinian finance ministry employee, was gunned down by settlers, the official Palestinian news agency Wafa reported.

Palestinian civil affairs minister Hussein al-Sheikh condemned the killing, saying on Twitter that it had come after settlers had seized Nofal's land and moved caravans onto it.

The Israeli army said he had been "neutralised" by a guard in a farm that he had infiltrated near the Palestinian town of Qalqilyah and that no weapons were found in his possession.

"At 03:45 (am), a terrorist entered the Sde Efraim farm by vehicle... and pulled over adjacent to the entrance of the farm owner's house," it said in a statement.

"The terrorist ran out of the car towards the house, shouting 'Allahu Akbar' (God is Greatest) while attempting to break into the house," it added.

It said the man had attacked an unarmed guard before being "neutralised" by settlers.

The farm is a so-called wildcat settlement, an outpost not recognised by the Jewish state, according to Israeli anti-settlement movement Peace Now.

International law regards all settlements built on occupied Palestinian land, whether public or privately owned, as illegal.

The military said soldiers later entered Nofal's village of Ras Karkar, near Ramallah, to carry out searches.