"The joint investigation team confirms that a number of civilians were killed in the course of the fighting..." it said.
However, it "is unable to determine with certainty which of those casualties were Taliban fighters and which were non-combatants because those killed are all buried", it said.
The US military and Afghan National Security Force (ANSF) team was still investigating the complex series of attacks, it said.
A statement issued by the US military later Saturday said that the investigation has also found evidence "of non-combatant casualties caused by Taliban fighters’ actions."
Doctors at Farah hospital said they had treated 16 patients for flash burns and small lacerations. "Afghan doctors said injuries could have resulted from hand grenades or exploding propane tanks," the statement said.
"Local doctors also confirmed that the Taliban were fighting from the roof tops while forcing the locals to remain in their compounds. Locals receiving medical treatment repeated this information to the doctors several times."
Doctors had also received a call while investigators were present indicating that the Taliban had executed a civilian, the statement said.
The US military says the fighting in the district of Bala Buluk was started by a large number of Taliban, including non-Afghans, who had gathered in two villages and demanded payments from villagers.
"The fighters executed three civilians to trigger a response from the Afghan police that they could ambush," it said.
Militants also attacked police checkpoints, inflicting some casualties. The provincial government called for help from Afghan and coalition forces, it said.
As heavy fighting continued for several hours, coalition troops called for close air support against their attackers.
"Reports also indicate that Taliban fighters deliberately forced villagers into houses from which they then attacked ANSF and coalition forces," the statement said, condemning the use of civilians as "human shields".
Claims over the numbers of non-combatants killed have differed wildly, with some reports of up to 167 and Pentagon officials estimating a maximum of 50.
The US military in Kabul has said more than 25 Taliban were killed but described figures issued for the civilian toll as "grossly exaggerated," including one from Afghan police of at least 70.
Karzai, on a visit to Washington, told CNN his government's information was that nearly 125 to 130 civilians were killed, including women and children.
"Airstrikes are not acceptable," he said.
United Nations officials dismissed earlier suggestions from the US military that the Taliban may have caused some of the casualties by throwing grenades at villagers.
"It is becoming clear that the large number of civilian casualties were caused by the air strikes and not by fighting on the ground or by Taliban insurgents themselves," an official said on condition of anonymity.
The UN had no toll but was using a "rough working figure of anywhere up to 167", he said, adding there were "serious concerns" about the independence of the joint Afghan and US investigation.
The United States led the invasion that toppled the extremist Taliban regime in late 2001 and remained to root out insurgents.
In the previous most deadly incident for civilians, Afghan and UN teams said around 90, including women and children, were killed in US air strikes in the western province of Herat in August last year.
The US military said 33 civilians and 22 militants died.