Three Palestinians were killed as Israeli police opened fire in Jerusalem’s Old City on Friday, in one of the most serious incidents in the city in recent years.

Two Israeli police officers also died in the exchange of fire near the Al-Aqsa mosque at the holy site.

Videos circulating on social media showed a hail of gunfire ring out in what seemed to be an exchange of bullets between Israeli security forces and the Palestinians.

Security forces locked down the area and the Al-Aqsa mosque was closed to Friday prayers after the incident in a highly unusual move, with the aftermath likely to heighten Israeli-Palestinian tensions.

The Palestinians were martyred at the site known to Muslims as the Haram al-Sharif and to Jews as the Temple Mount , the location of regular clashes but where gunfire rarely occurs.

The site includes the Al-Aqsa mosque and the Dome of the Rock.

Israeli Public Security Minister Gilad Erdan called it an "extremely severe event which crossed all red lines."

"The investigation is ongoing," he said.

"We will need to re-evaluate all of the security arrangements on the Temple Mount and its environs. I call on leaders on every side to work to calm the situation and maintain the quiet in Jerusalem."

The grand mufti of Jerusalem Muhammad Ahmad Hussein, the city´s highest Islamic authority, condemned the closure of the mosque compound for prayers.

"I have very little information about it, but it doesn´t mean you should close the mosque for prayers," he told journalists at the Lions Gate entrance to the Old City, near the holy site.

"There is no reason to close the mosque for Friday prayers."

Basem Badawi, a 60-year-old water seller in the Old City, told AFP that "I was standing here and then I heard the shooting . I thought it was fireworks.

"But then I saw the police coming from everywhere."

Flashpoint site
The Haram al-Sharif/Temple Mount is considered the third-holiest site in Islam and the most sacred in Judaism.

It is central to the Israeli-Palestinian conflict, with Palestinians fearing Israel may one day seek to assert further control over it.

It is located in east Jerusalem, occupied by Israel in the 1967 Six Day War and later annexed in a move never recognised by the international community.

Jews are allowed to visit, but not pray there to avoid provoking tensions. Israeli Prime Minister Netanyahu said in his statement after the incident that the current rules would be maintained.

A wave of unrest that broke out in October 2015 has claimed the lives of at least 277 Palestinians, 42 Israelis , two Americans, two Jordanians, an Eritrean, a Sudanese and a Briton, according to an AFP toll.

The violence has greatly subsided in recent months, though sporadic attacks have continued.