One Palestinian policeman and two Hamas fighters have been killed in the town of Qalqilya in the West Bank, officials have said.
Shooting erupted when police loyal to Mahmoud Abbas, the Palestinian president and leader of Fatah, surrounded a house on Thursday to arrest suspected Hamas fighters.
Al Jazeera's Nour Odeh, reporting from Qalqilya, said security forces first thought three Hamas fighters had been killed but sources later told her one of them had survived and surrendered.
Odeh said security forces had discovered three Hamas members in the basement of a house belonging to a man already in police custody.
"As soon as that basement was discovered, the policeman was shot.
"There were several attempts to negotiate their peaceful surrender. The mother of one of the Hamas gunmen came along with her son and nephew to try to convince the three to surrender their weapons but they refused.
"According to witnesses they shot back at the police."
Odeh said the police had used teargas and water canons, trying to get the fighters to come out, and then tried to dig through a tunnel which was part of the hideout.
"Apparently the sewage system flooded the basement, probably leading to these men's tragic death."
The fighting was the latest in a series of incidents that have further stoked tensions between Abbas' Fatah movement and Hamas, which controls the Gaza Strip.
Earlier this week, three police officers, two Hamas fighters and the owner of a house that was raided by the police were killed in fighting in Qalqilya, following a dawn raid on suspected Hamas members.
The raid sparked angry demonstrations by Hamas supporters in the Gaza Strip.
Hamas says that Fatah-dominated security forces are pursuing a politically motivated crackdown against Hamas activists, a claim which Fatah has also made about Hamas in Gaza.