The man was shot through the neck, the ministry said in a statement.
Palestinian sources had earlier reported the wounding of 24-year-old Haroun Rasmi Abu Aram in the village of Al-Tuwanah, south of Hebron.
The man had been attempting to prevent the troops from "stealing an electric generator" that belonged to him, according to the Palestinian news agency WAFA.
Israeli rights group B'Tselem said Abu Aram was helping a neighbour to build a house at the time of the shooting.
Read also: Israel grants settlers millions to monitor Palestinian construction in occupied West Bank
The Israel Defense Forces told AFP that a number of Palestinians had attacked its troops who were conducting a routine operation to evacuate an "illegal building" and had fired into the air in response.
An investigation into the incident was under way, the IDF alleged.
Israeli forces have been accused of using excessive force against Palestinians and deliberately shooting to maim.
Israel occupied the West Bank since 1967 and its settlements in the area are deemed illegal by the international community.
Despite that, Israeli settler population on Palestinian land has grown in recent years as Tel Aviv advances with plans to demolish Palestinian homes.
Read also: Israel orders house demolitions in Jerusalem, prompting local Palestinians to 'build tents'
The Israeli authorities regularly tear down homes built by Palestinians on their own lands in East Jerusalem and the West Bank, allegeding they are built "without construction permits".
However according to a UN study, such permits are "virtually impossible" to obtain from Israel, resulting in a housing shortage for Palestinians.
There are currently some 450,000 Jewish settlers in the occupied West Bank, living among an estimated 2.8 million Palestinians.
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