The unnamed soldier had initially claimed that he returned fire at a man armed with a pistol, an army statement said.
"However, following an intensive investigation by the military police of the Southern Command, the soldier admitted to shooting in proximity to an unarmed civilian in order to deter him," it added.
Hurndall was hit in the head and critically wounded by sniper fire in the Rafah refugee camp on 11 April and was subsequently pronounced clinically dead.
He currently lies in a vegetative state at a London hospital.
Palestinian medics and witnesses said Hurndall was trying to pull two Palestinian children out of danger when shots were fired from a nearby army watchtower.
But the army claimed at the time it had no knowledge of such shooting.
Hurndall was a volunteer with the International Solidarity Movement (ISM), a group of pro-Palestinian activists who engage in non-violent action to protect civilians in the West Bank and Gaza.
The soldier appeared before the Southern Command's military court on Wednesday for an extension of his remand in custody. It was not immediately clear when he was arrested.
"At this stage, the criminal investigation of the incident is still continuing," the statement said.
"Upon its completion, the findings of the investigation will be handed to the Military Advocate General for a decision regarding an indictment against the soldier."
Hurndall gave his life trying to
save Palestinian children
The Israeli army announced in late October that it was opening an investigation into the shooting.
The ISM said at the time that it wanted an independent investigation, charging that one undertaken by the army "will not be impartial."
Speaking to Aljazeera.net at the time of her son's birthday last month, Jocelyn Hurndall said she wanted "the Israeli soldiers responsible for harming Tom to know that they can't shoot people with impunity. We want to pave the way for Palestinian people to have some legal redress when they are shot and injured by the Israeli army just like my son was".
The family has hired a leading London-based human rights lawyer, Imran Khan, to represent Tom.
Tom's mother also told Aljazeera.net his family had little confidence in the probe and had taken matters into their own hands by personally investigating Tom's shooting.
British diplomats have been informed of the latest developments in the investigation.
Several ISM activists have been wounded by the army in the course of the Intifada, or Palestinian uprising.
An army investigation into the death of 23-year-old US national and ISM activist Rachel Corrie concluded that her being crushed to death by an Israeli bulldozer in Rafah last March had been an "accident".
"I want the Israeli soldiers responsible for harming Tom to know that they can't shoot people with impunity"
Mother of Tom Hurndall
It said it would not take any disciplinary action against the soldiers involved.
Corrie had been trying to prevent the demolition of a Palestinian home.
In both Hurndall's and Corrie's cases, witnesses were adamant they had been easily identifiable as they were wearing fluorescent orange jackets.