A video posted online showed the Palestinian, who had earlier allegedly stabbed a soldier along with another man in the West Bank city of Hebron, lying on the ground after being shot.
The soldier then appears to shoot him again in the head without provocation.
An army spokeswoman called the incident a "grave breach of (military) values", adding that an investigation had begun and "the soldier involved has been detained".
The investigation was opened before the video surfaced online, she said.
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It then appears to show an Israeli soldier raising his rifle and shooting the Palestinian in the head.
The video has spread widely and sparked condemnation.
Sarit Michaeli, a spokeswoman for Israeli rights group B'Tselem which posted the video, called it an "execution".
"It is clear that the Palestinian youth who was one of the two who stabbed the soldier was lying on the ground without posing any risk to security services," she told AFP.
"The security personnel around him are not treating him in any way like he is a danger. The soldier is simply seen shooting him in the head."
Most of the Palestinians killed were carrying out knife, gun or car-ramming attacks, according to Israeli authorities.
Others were shot dead during protests and clashes, while some were killed in Israeli air raids in Gaza.
Israel has faced accusations of using excessive force in response to some of the attacks, charges which it has firmly denied.