Thirty-three people were killed in the raid on three vehicles in Uruzgan province, the Afghan government said.
Nato said it hit a suspected insurgent convoy, but ground forces later found "a number of individuals killed and wounded", including women and children.
Civilian deaths in air strikes have caused widespread resentment in Afghanistan, and embarrassment to Nato.
Last year, Gen Stanley McChrystal, the Nato and US commander in Afghanistan, introduced much tougher rules of engagement in a bid to minimise such casualties.
The BBC's Chris Morris in Kabul says three vehicles on a road were hit by the strike on Sunday morning.
A Nato statement said it was thought the convoy contained Taliban insurgents on their way to attack Afghan and foreign military forces.
But Sultan Ali, the governor of Uruzgan province, told the BBC all of the dead were civilians.
He said the air strike took place in an area which is under Taliban control.
Uruzgan province is where the Dutch mission to Afghanistan has been based since 2006, with nearly 2,000 service personnel.
Over the weekend, the Dutch government collapsed over disagreements in the governing coalition on extending deployments in Afghanistan beyond August this year.
Gen McChrystal has apologised to Afghan President Hamid Karzai and pledged a full investigation into the latest deaths.
The Nato commander said in a statement: "We are extremely saddened by the tragic loss of innocent lives.
"I have made it clear to our forces that we are here to protect the Afghan people, and inadvertently killing or injuring civilians undermines their trust and confidence in our mission.
"We will redouble our efforts to regain that trust."
Our correspondent says the strike was not linked to the Nato-led Operation Moshtarak which is continuing in Helmand province, to the south of Uruzgan.
Last week, 12 civilians died in that offensive - whose name means "together" in Dari - when ground-launched rockets hit a home.
About 15,000 Nato and Afghan troops are involved in Moshtarak, now in its second week, and the largest operation since the Taliban were overthrown in 2001.
The head of US Central Command, Gen David Petraeus, said on Sunday the operation, part of a revised strategy for combating insurgents, would probably last up to 18 months.
Source : http://news.bbc.co.uk/2/hi/south_asia/8527627.stm