Wali, 44, was standing next to an Aljazeera cameraman on the fourth floor of the hotel housing the crew. They were filming fierce clashes early on Friday morning between US occupation forces and followers of Shia leader Muqtada al-Sadr, reported journalist Abd al-Adhim Muhammad.
"He looked up to try to locate the place of the US military vehicles, but he was shot in the head by machine guns," said Muhammad. He died instantly.
There was a power cut followed by a heavy exchange of fire as US vehicles rumbled by, he said.
"We could not confirm the source of the fire but it was directly pointed at us," said Muhammad. Another nine civilians were killed in the fighting.
An official Aljazeera satellite channel statement released on Friday says: "No verifiable information was immediately available as to the source of the bullet that led to Rashid's untimely death, however, eyewitnesses showed members of the media corps samples of the bullets that hit the vicinity of the hotel rooftop".
Aljazeera also called on US officials to launch an investigation into Wali's death.
"Aljazeera urgently calls on the US occupation and the CPA to immediately conduct a full official investigation into the death of Rashid Hamid Wali, and to make the result public," Aljazeera said.
Wali, or Abu Nur as he was known, was the father of six children.
Wali's relatives blamed US
President George Bush
Upon news of the killing, Aljazeera's Baghdad bureau was flooded with calls from journalists offering condolences reported correspondent Yusuf al-Shuli.
There is also fury among journalists, he added.
Iraq-based journalists said they regarded his death as not only a loss for Aljazeera, but for the entire media corp in Iraq, said al-Shuli.
A sombre procession including distraught employees, relatives, Arab and foreign journalists converged at the Aljazeera bureau where Wali's coffin was brought before being taken to his home where family members would say goodbye.
Members of the Iraqi Journalists Union were also present.
Gareth Bailey, spokesperson for the occupation authority, known as the Coalition Provisional Authority (CPA), told Aljazeera it was "still early to report the real story".
With so many journalists in Iraq, Bailey said risks were higher for journalists to be killed as clashes continued between occupation troops and who he claimed were "terrorists".
"Our target is not the journalists," he said.
As many as 27 other journalists have been killed in Iraq since the start of the war in March 2003, according to the Committee to Protect Journalists (CPJ).
Aljazeera reporter Tariq Ayub was also killed in Iraq when a US missile slammed into Aljazeera television's Baghdad bureau.