The police said in a statement that "hundreds" of far-right Israelis marched towards the Damascus Gate in East Jerusalem's Old City.
The Hebrew-language Ha'aretz newspaper reported that the people on the march chanted anti-Arab slogans. Police forces tried to separate between the march and dozens of Palestinians who protested against it.
The march was organised by Lehava, a far-right Israeli group, according to a statement by the group.
A policeman was wounded in his face by a rock hurled during the clashes, the police said, adding that Molotov cocktails were also hurled during the rallies.
The police fired stun grenades and a water cannon to disperse the crowd, local media reported.
Clashes between Palestinians and police forces have occurred since the beginning of Ramadan last week. The Palestinians said the clashes were sparked by barriers placed by the police outside the Damascus Gate, where Palestinian typically gather during the Ramadan nights.