A paramedic for the Magen David Adom ambulance service said the woman had suffered multiple stab wounds and was pronounced dead in hospital.
Jerusalem police chief Yoram Halevy told the AFP news agency that the man was "very mentally disturbed".
"She was a talented student and was studying at Birmingham University for a degree in Religion, Theology and Archaeology".
Shin Bet, the Israeli security agency, said in a statement: "This is another incident of many in which a Palestinian suffering from mental health or personal issues has chosen to carry out an attack as a way out of his problems".
The Israeli prime minister, Benjamin Netanyahu, blamed "Islamic terrorism" for the killing.
A Palestinian man fatally stabbed a British student on Jerusalem's transit network yesterday, Israeli police said.
The police first said the assailant was shot, but a later statement said an off-duty policeman on the rail witnessed the incident and arrested the stabber without shooting.
A British foreign office spokeswoman said: "We can confirm the tragic death of a British national in Jerusalem".
'Our family are devastated by this senseless and tragic attack'. Our thoughts are with her family and friends.
Israeli media said Bladon was a 21-year-old exchange student studying at the Hebrew University in Jerusalem.
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"This week thousands have come through the ancient gates of Jerusalem, to celebrate the feasts of Passover and Easter throughout the city - while the security forces work to ensure the safety of the dear residents and visitors to the city".
Israel's President Reuven Rivlin said he was "filled with sadness about the attack" and that his thoughts and prayers were with the family of the victim. "And so we will continue to do", he said.
The Hebrew University offered its condolences to Bladon's family, saying in an official statement that "the university condemns such acts of terror and murder that hurt innocents who have come to Jerusalem to enrich their knowledge". "Terror will never destroy our lives here".
The attack came amid the Jewish holiday of Passover.
The compound, which is the third holiest site in Islam and the holiest site to Jews, who refer to it as the Temple Mount, is the source of constant tensions.
Apart from Friday's fatality, Palestinians have killed 42 Israelis and two visiting Americans since September 2015, mainly in stabbings, vehicle ramming assaults and shooting attacks against civilians and security forces.
Israel says at least 162 of the Palestinians killed had launched stabbing, shooting or vehicle ramming attacks.
Palestinian fears that Israel will seek to change those rules have been the source of repeated violence.
The violence has greatly subsided in recent months.
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