More than 40,000 Nato troops are deployed in Kosovo
The soldier, who has not yet been named, was serving with the international peacekeeping force K-For.
He died on Monday after receiving a single bullet wound to the head in the Yugoslav's province's capital Pristina.
The soldier was taken by ambulance to an Army medical centre where he was pronounced dead.
He had been guarding a Serbian orthodox church in the regional capital along with a small team of British troops.
Both United Nations police and British military police are investigating the death.
But investigators have ruled out the possibility that the soldier was killed in an attack on his post or that he was shot by fellow serviceman.
Foreign Office Minister Peter Hain said he had been advised that the soldier's shooting "was not as a result of a hostile act".
Militant target
Speaking on BBC Two's Newsnight programme he said: "Obviously this is a tragedy for his family and for him clearly, but it doesn't appear to have been as a result of a hostile act.
"He died as a result of wounds to the head but it wasn't in action or from a sniper.
"The exact circumstances are still to be determined but I repeat it wasn't as a result of a hostile act, so I'm advised."
The soldier was on duty protecting a Serb Orthodox church in the centre of Pristina.
K-For have been involved in the protection of Serb Orthodox churches, because they have often been targeted by Albanian militants.
Kosovo has been under UN administration since Serb forces were driven out by Nato's 1999 bombing campaign.
The man is the sixth British soldier to die on duty in Kosovo this year and the 10th since Nato troops entered the province in June 1999.
The MoD said they will not give any more details until the next of kin have informed.