A mosque in the Israeli-occupied Palestinian West Bank's village of Deir Istiya has been set on fire by alleged Jewish settlers.

The main gate of the mosque and some of the carpeting inside were charred by the flames, according to Reuters.

Graffiti in Hebrew was scrawled on the mosque, reading "Arabs out" and "Revenge for spilled blood in Qusra".

The incident, regarded as "severe" by the Israel Defence Forces (IDF), comes at a time when US secretary of State John Kerry is trying to rekindle peace talks between Israelis and Palestinians.

"Such acts divert our attention from their primary mission, which is to combat terror, and undermine the relative stability in the area," said a statement by the IDF.

An Israeli police spokesman said a search for the suspects was under way.

Last week, Palestinian officials handed a group of Jewish settlers over to the IDF after they were almost lynched by West Bank villagers angered by their acts of vandalism.

Palestinian and Israeli sources alleged that the Jewish settlers had entered Qusra to carry out a price-tag attack.

"Price-tag" is the term used by Jewish settlers to describe attacks – usually carried out against Palestinians but also targeting Christian churches and Israeli Arabs – in retribution or punishment for the Israeli government's actions perceived as anti-settler. The attacks are aimed at exacting "a price" for government actions, such as demolishing settlements.