Leaked footage, believed to be from the al-Zaim checkpoint outside of Jerusalem, shows the man falling to the floor in howls of pain after being hit with a sponge-tipped bullet.
Broadcast on Israeli television, the cruel footage shows border officers shouting at the young man to 'get out of here!' in Arabic.
One officer then points his rifle at the Palestinian man, who holds his hands up and starts to calmly walk away.
However, Channel 13 news agency report that the police then continue to shout contradicting instructions at him as he begins to panic, before one of them shoots him in the back.
They report the police as saying the man was not seriously hurt, although newspaper Haaretz reported that he was 'seriously wounded'.
Israeli police said they removed the policewoman from the force after learning of the incident, while other police involved in the incident were re-assigned.
Police spokesman Micky Rosenfeld said the justice ministry had opened an investigation into the incident, which he said took place a year and a half ago.
'As soon as the incident became known the female border police officer was removed from duty,' he said.
'The other border policemen who were there were also removed and some of them were transferred from their positions.'
In a Sunday statement, the justice ministry said it would soon announce whether to charge a former policewoman.
The ministry added that it had completed a criminal investigation after holding four hearings into last year’s incident. It did not say when it will reveal its decision.
On Sunday, the Palestinian Liberation Organization slammed Israel over the incident and urged the United Nations to act.
'The video shows the extent of blind hatred and Zionist racism,' it said.
At a bail hearing at the Jerusalem Magistrate’s Court last year, Judge Elad Persky said the suspect apparently shot the Palestinian 'as a dubious form of entertainment', according to Haaretz.
Israel’s leading human rights group, B’Tselem, said a culture of impunity was behind incidents like these.
'This exceptional documentation shows what, sadly, is an unexceptional event: Israeli security forces hurting a Palestinian for absolutely no reason,' said B’Tselem spokesman Amit Gilutz.
'Such instances are the direct result of the culture of impunity fostered by Israel, which is crucial to the perpetuation of its military control over the Palestinians.'
Three million Palestinians live in the territory, alongside more than 400,000 Israelis in settlements seen as illegal under international law.