MP Moshe Feiglin was met with protests from Muslims crying "Allahu akbar!" (God is greater) when he visited the Old City site, an AFP photographer said.
The hardline member of Netanyahu's rightwing Likud bloc is a leading advocate of the right of Jews to pray there.
Long-standing practice at the compound, known to Jews as the Temple Mount, allows visits by other faiths but limits prayer to Muslims.
Netanyahu, who has repeatedly said he has no intention of changing the status quo, on Saturday urged the far right to act "responsibly" in the face of mounting tensions and near daily clashes in Jerusalem.
"At this time we must show responsibility and restraint," he said at the Sunday cabinet meeting.
But he also told ministers that Islamic groups were using claims of plans to change the rules at the compound to foment anti-Israeli sentiment.
"They are disseminating lies to the effect that we intend to destroy or harm the Al-Aqsa mosque and that we intend to prevent Muslims from praying there," he said.
"They are using verbal and physical violence in an effort to exclude Jews from going up to the Temple Mount," Netanyahu said.
"We will not allow this to happen; neither will we alter the worship arrangements and the access to the Temple Mount that has been customary for decades."
REGEV BLAMES PALESTINIANS
Netanyahu's spokesman Mark Regev later told reporters: "If there is a threat to the status quo it seems to be coming from the Palestinians, who said that non-Muslims' visits to the Temple Mount are suddenly unacceptable," while implicitly blaming Palestinian president Mahmud Abbas for "incitement".
Last month, Abbas urged Palestinians to prevent "settlers" -- a euphemism for nationalist Israeli Jews -- from visiting the compound "by all means", following clashes there.
But on Sunday Abbas took a reconciliatory tone, and in a rare move "hailed" Netanyahu's call for restraint as a "step in the right direction".
Abbas stressed the "necessity to continue working to create a calm atmosphere", the official Palestinian news agency WAFA said.
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He also warned that provocations by Israeli "extremists" would lead to "dangerous consequences" that would "reflect on the whole region".
Jordan's King Abdullah II on Sunday also warned against attempts to change the status of Jerusalem holy sites.
"Jordan will continue to confront, through all available means, Israeli unilateral policies and measures in Jerusalem and preserve its Muslim and Christian holy sites, until peace is restored to the land of peace," he said.
ISRAEL 'AT RED LINE'
Jordan, which administered east Jerusalem and the West Bank before Israel seized the Palestinian territories in the 1967 Middle East war, has responsibility for holy sites in the Israeli-annexed eastern sector.
The Arab League also said Sunday that Israel had reached a "red line", with deputy chief Ahmed Ben Hilli warning: "Touching Jerusalem will lead to results with untold consequences."
Israel on Thursday ordered a rare closure of the compound as Palestinian youths clashed with police after officers shot dead a Palestinian suspected of trying to murder a hardline Israeli rabbi.
It reopened the following day under heavy security and Friday prayers passed without incident.
On Sunday, only male worshippers over 40 were admitted. Women were not subject to restrictions.
The cabinet meanwhile approved harsh new measures aimed at curbing Palestinian protests in east Jerusalem, setting a maximum 20-year jail term for throwing stones at motorists or public transport.
The amendment still needs parliamentary approval.
In east Jerusalem clashes late Saturday and early Sunday, police arrested 17 Palestinian protesters, police spokeswoman Luba Samri said.
Another police source said that around 900 Palestinians had been arrested in the city since July and nearly 300 charged.
Jerusalem has been rocked by almost constant unrest since the murder of a Palestinian teenager in July in revenge for the killings of three Jewish teenagers in the West Bank.
A 50-day war between Israel and Palestinian militants in Gaza in July and August intensified protests and clashes in the Holy City.