Troops “operated to prevent an immediate threat”, the army said, describing one of the dead as a “leading military operative” from the Jenin refugee camp, a militant stronghold in the northern West Bank.
On Sunday, Al Qassam Brigades in Jenin, the Palestinian Islamic Jihad's military arm, announced that Nayef Jihad Abu Souwais, 27, Loai Nizar Nimer Abu Na'saneh, 21 and Bara'a Ahmad Alqarm, 15, had been killed by Israeli forces.
The brigades called the Israeli attack “cowardly”.
“It is possible that the occupation was watching them as they left Jenin camp, through agents and drones, until they reached a road that leads to Dutan checkpoint, which is when the assassination was carried out?” the brigades said on their Telegram page.
They said there was an exchange of gunfire with Israeli forces overnight but neither side reported casualties.
The West Bank has had a string of attacks by Palestinians on Israeli targets since early last year, as well as violence by Israeli settlers against Palestinian communities and repeated Israeli army raids.
The army on Sunday said “a vehicle carrying a squad of terrorists from the Jenin refugee camp was identified while on its way to carry out an attack”.
Soldiers opened fire and killed three passengers, the statement said, including suspected squad leader Nayef Abu Swiess, 26.
The Palestinian Health Ministry confirmed the deaths of three “young men by occupation [Israeli] bullets” in the incident near the town of Arraba in the Jenin area.
The deputy governor of Jenin, Kamal Abu Al Roub, told AFP the Israeli army had “taken the car and the bodies”.
“The car had an Israeli licence plate,” Mr Al Roub said.
Abu Swiess, according to the army, was “involved in military action against Israeli security forces and advancing military activity directed by terrorists in the Gaza Strip”, the coastal enclave controlled by Palestinian militant group Hamas.
Mourners later lay flowers at the site where the Palestinians were killed on Sunday, AFP reported.
Tensions in the West Bank – in pictures
Israeli Prime Minister Benjamin Netanyahu praised the troops for killing the militants who he said were on their way “to attack Israeli citizens”.
“We will continue to take action, everywhere and at any moment, against those who seek to attack us,” Mr Netanyahu said in a statement.
Meanwhile, Palestinian militant group Islamic Jihad pledged to respond to the latest deaths.
“The enemy will soon see that its foolish actions and terror will be met with a strong response by the resistance,” it said in a statement.
Hamas said in a statement: “Our Palestinian people and their courageous resistance will not let the occupation's aggression pass without a price.”
Jenin refugee camp, one of the most crowded and impoverished in the West Bank, has become synonymous with Palestinian militancy and resistance against Israel.
In recent years it has been the site of fierce fighting between Israeli forces and Palestinian armed groups.
Over the past 18 months, the security situation in the camp has deteriorated with repeated Israeli raids which security forces say are to pursue militants.
In July, the Israeli army carried out its biggest operation there in years, which killed 12 Palestinians, including children and militants.
One Israeli soldier was also killed in the two-day operation.
The camp was established in 1953 to house some of those among the 760,000 Palestinians who fled or were expelled from their homes during what Palestinian call the Nakba, or “catastrophe”, the 1948 purge that coincided with Israel's creation.
Today about 18,000 people live in the camp.
Sunday's deaths are the latest in a surge of bloodshed to hit the West Bank, which Israel has occupied since the 1967 Arab-Israeli war.
On Friday, Qusai Jamal Maatan, 19, was shot dead in Burqah, east of Ramallah, as armed settlers clashed with Palestinian villagers.
A day later, a Palestinian gunman killed an Israeli municipal officer in Tel Aviv, before being fatally shot by another officer.
Violence this year linked to the conflict has killed at least 211 Palestinians, 28 Israelis, one Ukrainian and one Italian, according to an AFP tally.
They include, on the Palestinian side, combatants as well as civilians and, on the Israeli side, three members of the Arab minority.
Excluding annexed East Jerusalem, the occupied West Bank is home to nearly three million Palestinians and about 490,000 Israelis who live in settlements considered illegal under international law.