“Voting began as scheduled at 7am and has passed off so far without incident,” Jamal Shubaki, president of the local elections commission, told AFP.
The polls are due to close 12 hours later.
Around 148,000 Palestinians are entitled to vote in Thursday’s elections for 414 council seats, with more than 1,300 candidates, around a fifth of them women.
The ballot pits the dominant Fatah party against the radical Hamas movement, which has enjoyed a strong showing in the three earlier rounds of voting.
Its success at municipal level has persuaded the radical movement to agree to participate in what will be its first-ever parliamentary elections on January 25.
However, Thursday’s ballot is expected to provide a much firmer indicator of the Islamists’ strength as it will be the first time voting has taken place in the cities.
The vote comes as a dispute within Fatah, which is the ruling Palestinian party, has led to a rival faction submitting its own list of candidates for next month’s election, headed by jailed activist Marwan Barghouti.
It is seen as a blow for Palestinian leader Mahmoud Abbas and Fatah’s old guard, and signals a bold bid by Fatah up-and-comers to shake up the party and fend off an unprecedented challenge by Hamas.
The list was filed just hours before Mr Abbas was to present the official ticket, and also includes civil affairs minister Mohammed Dahlan, Abbas’ security advisor Jibril Raioub and MP Qadura Fares.
“This is a new dawn,” said veteran Palestinian power-broker Mr Dahlan.
The election on January 25 will be only the second-ever parliamentary ballot since the establishment of the Palestinian Authority a decade ago, and will be the first time that Fatah’s dominance has met a serious challenge.
But in a surprise riposte, Abbas loyalists also placed Barghouti at the top of the official Fatah list.
“We hope that there will be only one list,” said Foreign Minister Nasser al-Kidwa.
Barghouti is serving a life term in an Israeli prison over militant attacks carried out during a Palestinian revolt.
He has until January 1 to decide which list to be on.
The split in Fatah’s ranks occurred as Israel launched air strikes in the Gaza Strip, killing four Palestinian militants in the latest of a series of stepped-up military attacks since a suicide bombing in the Jewish state last week.
Israel launched two air strikes against militant targets across the Gaza Strip early on Thursday, demolishing two buildings used by Palestinian militants but causing no casualties, sources on both sides said.
Earlier, a top Islamic Jihad official has escaped assassination by Israel in Gaza City after his car was hit by an Israeli missile, just hours after four militants were killed in a strike on another car.
The attacks came as Israel ramped up its targeting of Palestinian militants, a controversial policy renewed after a suicide bombing killed five Israelis in the coastal town of Netanya on December 5.
The latest raid saw an Israeli missile hit a car in which Jihad leader Khader Habib was travelling, but he managed to escape with only slight injuries, a source from the radical movement said.
The blast occurred in the eastern Al-Shejaiyeh district where, just hours earlier, four militants from the Popular Resistance Committees were killed and three others wounded when an Israeli drone fired two missiles at their vehicle.
The latest deaths raised to 4,911 the overall toll since the Palestinian intifada, or uprising, began in September 2000. More than three-quarters of the victims have been Palestinian.