Israeli police raided al-Aqsa Mosque compound and hurled stun grenades at Muslims protesting there at midday Friday.
Israeli daily Ha'aretz reported on its website that 15 police were hurt in the riots, and 17 Palestinians were arrested.
According to Israel Radio, some 4,000 Muslim worshippers gathered at al-Aqsa Mosque compound for Friday prayers and the clashes broke out after demonstrators threw stones at the Western Wall area below.
Large police forces then broke into the complex and threw stun grenades and several officers were lightly injured and the Jewish worshipers were evacuated from the Western Wall Plaza, local daily Yedioth Ahronoth reported.
Meanwhile, the pan-Arab al-Jazeera TV channel also reported that "many protesters were injured and arrested outside al-Aqsa Mosque."
Israeli reports said the riots is likely expanding from the compound to other places and the residents of east Jerusalem hurled three Molotov cocktails at policemen deployed at the Lions' Gate outside the Old City.
A Xinhua correspondent at the scene saw Israeli helicopters hover over the Old City and a zeppelin is monitoring the situation in al-Aqsa Mosque compound and the Western Wall Plaza.
A police officer guarding the entrance of the Western Wall Plaza told Xinhua that the situation in al-Aqsa Mosque compound has returned quiet now, and Muslim worshipers remain in the compound are starting to leave.
Meanwhile, in the West Bank towns of Jenin and Tul Karem, thousands of angry Palestinians thronged the streets shouting slogans against Israel and demanding the renovation work be stopped.
The clashes came after the Israeli Antiquities Authority on Tuesday began a salvage excavation in the Jerusalem Archeological Park, sitting beneath al-Aqsa Mosque compound, for the purpose of erecting supporting pillars for a permanent and safe bridge leading to the entrance of the compound.
The compound, where al-Aqsa and Dome of the Rock is located, is referred to by Jews as the Temple Mount and by Muslims as al-Haram al-Sherif, the Noble Sanctuary.
Al-Aqsa Mosque is Islam's third holiest shrine and has been a focus for Israeli-Palestinian fighting in the past.
Although Israel said the excavations will impose no threat to al-Aqsa Mosque compound, Muslims in countries across the Middle East have condemned such move and expressed their concern that the excavation could undermine the peace efforts in the region.
Earlier on Friday, in light of growing tensions, Israeli police has increased security levels throughout the country, particularly in Jerusalem.
In a meeting held by Israeli Police Commissioner Moshe Karadi on Thursday, it was decided to increase the alert level with over 2,000 police officers to be stationed throughout the old city of Jerusalem ahead of the Friday noon prayers, Yedioth Ahronoth reported earlier in the day.
Only men over 45 years old in possession of Israeli IDs will be allowed entrance to al-Aqsa Mosque compound, said the report, adding that in a further attempt to calm tensions, the excavations will not continue on Friday or Saturday.