The confrontations took place after the Israeli settlers attempted to storm the Al-Ghazali Square area during a protest, local sources told The New Arab's Arabic sister site Al-Araby Al-Jadeed.
Israeli forces intervened and attacked worshippers with batons and stun grenades, leaving many Palestinians with injuries.
Earlier on Friday, hundreds of radical settlers chanted racist slogans at another protest near Bab Al-Sahira, one of the Old City's gates.
Dozens of extremists also tried to storm the Al-Aqsa Mosque compound through another gate but they were stopped by worshippers, forcing Israeli police to remove them.
It came after provocative marches towards the well-known Sheikh Jarrah neighbourhood that started late at night and continued until Friday morning.
Stones were thrown at homes in the neighbourhood before Israeli police separated residents and settlers.
Settlers also attacked Palestinian homes in the Silwan area of Jerusalem.
On Thursday, tens of thousands of radical Israelis marched through the Muslim Quarter of Jerusalem's Old City.
The far-right "Flag March", an annual event, saw participants chant "Death to Arabs". Palestinians and journalists were attacked.
Hundreds of Israelis also stormed the Al-Aqsa Mosque compound, with Israel's Negev and Galilee Minister Yitzhak Wasserlauf reportedly among them.
The storming of Al-Aqsa was condemned by Middle Eastern states including Qatar, Saudi Arabia, Turkey, Egypt, the UAE and Jordan.
"Qatar condemns in the strongest terms the storming of an Israeli minister, parliamentarians, and settlers into the courtyards of the blessed Al-Aqsa Mosque, as part of the so-called Flag March," Doha's foreign ministry said in a statement.
"It considers it a flagrant violation of international law and the Hashemite [Jordanian] guardianship over the holy places in occupied Jerusalem."
Muslim and Christian holy places in Jerusalem frequently come under attack.
During Ramadan in April this year, Israeli forces viciously attacked worshippers at Al-Aqsa.
They were filmed hitting Palestinians with rifle butts during a raid.