A Palestinian man was shot dead by an Israeli private security guard, provoking a day of rioting in Jerusalem that left at least a dozen injured and raised fears of a new cycle of violence.

The death also cast light on the role played by private security guards, who are hired to protect Jewish settlements in Palestinian neighbourhoods in occupied East Jerusalem.

They have repeatedly been involved in skirmishes with Palestinian residents and have also triggered complaints from Israeli human rights groups.

According to Israeli police, the incident happened in the early hours of Wednesday, while the guard was on patrol in the East Jerusalem neighbourhood of Silwan. “He was surrounded and stones were thrown at him,” said Micky Rosenfeld, an Israeli police official.

The guard then fired “into the air” but hit a 32-year old Palestinian man who was throwing stones from a nearby rooftop. The man, identified as Samir Sarhan, a father of five children, died from his injuries.

The Israeli account was immediately challenged by Palestinian officials.

“Mr Sarhan was in his own neighbourhood when the Israeli settler security officer shot him in cold blood,” said a statement from the Palestinian Authority.

It added that placing “heavily armed settlers in the heart of Palestinian neighbourhoods” had resulted in “daily provocations and violence against defenceless and unarmed Palestinians”.

Silwan, a neighbourhood close to the Old City, has been the focus of intense activity by Jewish settlers, who have taken over buildings and constructed a sprawling archaeological theme park popular with tourists.

The death triggered unrest in several parts of Jerusalem, including areas close to the holy sites of the Old City.

At one point, police pursued Palestinian stone-throwers and stormed the Temple Mount, or Haram al-Sharif, which is home to the al-Aqsa mosque and venerated by Muslims, Jews and Christians alike.

Several thousand policemen were called out to quell the protests but skirmishes continued throughout the day and into the evening. One Israeli man was stabbed during the riots, suffering moderate injuries. Several cars were set alight, and police made at least eight arrests.

The latest outbreak of violence came as Israeli and Palestinian negotiators were struggling to make progress in the latest round of peace talks. Benjamin Netanyahu, the prime minister, and Mahmoud Abbas, the Palestinian Authority president, agreed to launch a new diplomatic effort in Washington this month.

However, the two sides remain deadlocked over Jewish settlement activity in the occupied West Bank – the issue that has dominated discussions so far.