Clickonce:when IE tries to execute the .application file it comes up with a prompt asking to save the .application file

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Errorscreenshot

 

It Gives prompt with Unknown File type

This Could be the issue with Local MIME types or permission on Internet Explorer
1)For Fixing MIME, Please install related .Net Framework version on the machine and repair in case its already installed

2)For permission we should check user and machine problems.
-Please create a new user profile and try launching the application from new user
To check Permission Process monitor could be used

Process monitor Log would look like
===========================
iexplore.exe    1480    RegOpenKey    HKCR\.application    ACCESS DENIED    Desired Access: Query Value
iexplore.exe    1480    RegOpenKey    HKCU\Software\Classes\.application    NAME NOT FOUND    Desired Access: Query Value
iexplore.exe    1480    RegOpenKey    HKCR\.application    ACCESS DENIED    Desired Access: Query Value
===========================

To provide permission Please use this SubInACL tool
we have to run few commands from command prompt :
C:\Program Files\Windows Resource Kits\Toot
Commands to run:
subinacl /subkeyreg HKEY_LOCAL_MACHINE /grant=everyone=f
subinacl /subkeyreg HKEY_CURRENT_USER /grant=everyone=f
subinacl /subkeyreg HKEY_CLASSES_ROOT /grant=everyone=f
subinacl /subdirectories %SystemDrive% /grant=everyone=f

Please check for more information
https://blogs.msdn.com/astebner/archive/2006/09/04/739820.aspx