David Chater, Al Jazeera's correspondent in northern Israel, said that two Israeli bulldozers had crossed a security fence but that they had "stayed within the internationally recognised border of Israel".
He said a tank accompanying the bulldozers had fired two shells at the Lebanese position after the bulldozer came under fire, but no casualties were reported.
Milos Strugar, the spokesman for the UN Interim Force in Lebanon (UNIFIL), issued a statement on Thursday describing the incident as "serious" and said UN soldiers had been deployed in the area.
He said: "The exchange was initiated by the Lebanese army after an IDF bulldozer crossed the technical fence in an apparent attempt to clear the area between the ... fence and the Blue Line of mines.
"UNIFIL ... has been in contact with both sides urging them to cease hostilities immediately."
A spokesman for the Israeli military said the team was clearing an area in which four unexploded bombs, which it said were planted by Hezbollah, had been found on Monday on the Israeli side of the Blue Line, the border that was marked out by the UN after the Israelis withdrew from Lebanon in 2000.
Lebanese security sources told Al Jazeera on Wednesday that the army had been put on high alert and was ready to stop any Israeli incursion should it cross into Lebanese territory.
The Lebanese army said a state of emergency had been declared in the border village of Maroun al-Ras.
Show of strength
Hezbollah has said the bombs that were detonated by the Israelis on Monday were planted before the war in southern Lebanon last summer as a defensive measure.
The security situation has been escalating in the area over the last couple of days after the testimony of Ehud Olmert, the Israeli prime minister, before the commission investigating last year's war.
Olmert said one of the successes of the Israeli offensive was to drive Hezbollah forces away from the border.
Zeina Khodr, Al Jazeera's correspondent in Lebanon, says that, subsequently, Hezbollah flags and signs can be seen frequently in the area as a demonstration that they still have a strong presence and support in the border area.
In a related move, Israel intensified on Thursday its controversial military flights over the Lebanon border but stressed that it wanted no escalation.
"We are going to continue our flights and even bolster our aerial activities our Lebanon," General Alon Friedman told public radio hours after the exchange on the Israeli-Lebanese border.
Israeli aircraft flew over the border zone on Thursday, in operations that the UN has previously warned undermine the "credibility" of its peacekeepers and Lebanese soldiers, and "compromise" stabilising efforts.
Source: Al Jazeera and agencies