Mohammad Abu Khalaf, from the town of Kafr Aqab in north Jerusalem, was shot repeatedly from a close distance and then left to die from his wounds.
Khalaf was accused of allegedly stabbing two Israeli officers from behind at the Damascus Gate in Jerusalem, Israeli police said.
"We heard heavy shooting at Damascus Gate, one of the main entrances to the Old City of Jerusalem," a source told The New Arab.
"Soon after, it emerged that a number of Israeli soldiers had opened fire from a short distance on a young Palestinian man and left him bleeding on the ground until he died," the source added.
Israeli police prevented Palestinians from approaching Khalaf to help him, the source said.
Police were deployed across the Old City as the area was declared a closed military zone.
Meanwhile the injured Israeli officers were taken to hospital, Israeli police spokeswoman Luba Samri said.
|Israelis remove the body of 20-year old Mohammad Abu Khalaf after Palestinians were barred from approaching the area [Getty]|
In the past few months, Israeli officers have beefed up their presence in Jerusalem's Old City claiming that the security measures are necessary to counter the recent campaign of stabbings waged by Palestinians.
Critics however have said that Israel has waged arbitrary campaigns of arrests and shootings against Palestinians.
Swedish foreign minister Margot Wallstrom called for investigations into the deaths of Palestinians accused of stabbings to determine whether Israeli forces are guilty of "extra-judicial killings."
At least 181 Palestinians have been killed by Israeli fire since October, 32 of them under the age of 18.
Israel claims that a Palestinian campaign of incitement is fanning the violence.
Palestinians say it is rooted in frustration stemming from nearly five decades of Israeli occupation.