Al Jazeera has learnt that the clashes erupted on Sunday after Israeli police tried to enter the compound in occupied Jerusalem's Old City.
The site is known to Jews as the Temple Mount and is revered by Muslims as al-Haram al-Sharif (the Noble Sanctuary), comprising al-Aqsa mosque and the Dome of the Rock.
At least 10 people were injured and another 15 detained, Al Jazeera's correspondent in Jerusalem said.
Israeli police put the number of arrests at 12.
Early on Sunday, Israel police deployed extra troops after calls for demonstrations around the holy site.
The Palestinian calls came amid rumours that rightwing Jewish activists were planning to gather at al-Aqsa compound.
The rumours circulated after a fringe Israeli group, the Organisation for the Defence of Human Rights on the Temple Mount, called on Jews to gather at the mosque compound as well as the adjacent Western Wall.
Palestinian officials said the Israeli police closed off the compound to visitors, leaving hundreds of worshippers inside.
Jivara al-Budairi, Al Jazeera's correspondent in Jerusalem, said: "Clashes between Palestinians and the Israeli police spread to the Old City neighbourhoods of Bab Hutta, Bab al-Majlis and Aqabat al-Tkiye.
She said the injured could not be moved out of the compound because of the Israeli police siege.
She said the violence in the Old City erupted after the Israeli police fired tear gas and stun grenades at Palestinian students and youths in the area.
The youths retaliated by throwing stones at the soldiers.
Columns of black smoke could be seen rising from areas close to the mosque compound, our correspondent said.
It seems that Palestinian youths set ablaze tyres in areas where Israeli police and army forces were heavily deployed, she said.
A large number of Palestinians began a march from the Old City towards al-Aqsa mosque, she said.
The neighbourhood's merchants have, meanwhile, announced a comprehensive strike and closed all shops, al-Budairi said.
Micky Rosenfeld, the Israeli police spokesman, said the raid and arrests took place after Palestinian youths threw stones and a petrol bomb at a police patrol near the mosque.
Source: Al Jazeera (English)