"Twenty-one people were killed in the Nawa area... among them four children and six women, in a blast that detonated as their vehicle went past."
The Observatory's Rami Abdel Rahman said they were members of three families probably fleeing Nawa, which has been the scene of heavy fighting.
Activists accused troops of planting the explosives, the watchdog added, but state news agency SANA said "21 terrorists (rebels) were killed when they were booby-trapping a car."
Daraa province is the cradle of the uprising against President Bashar al-Assad that broke out in March 2011 and escalated into a civil war that the Observatory says has killed more than 115,000 people.
Assad's troops are not the only forces being targeted by rebels, with the Observatory reporting that Kurdish fighters in Hasaka province are engaged in pitched battles with two rebel groups, both Al-Qaeda-affiliated, the Islamic State of Iraq and the Levant, and Al-Nusra Front.
"At least 41 fighters were killed, including 29 ISIL, Al-Nusra Front and Islamist fighters," the Britain-based group said.
Also killed were "12 fighters from the Committees for the Protection of the Kurdish People" (YPG).
Clashes have raged for months in majority Kurdish areas, as ISIL has sought to expel the YPG from areas it controls.
Fighting also raged in the main northern city of Aleppo, where rebels assaulted the administration block of the central prison following a six-month siege, the Observatory said.
US presses rebels over stalled peace talks
The clashes come as the United States seeks to persuade a key opposition group to agree to attend a proposed peace conference in Geneva.
The stalled initiative, dubbed Geneva 2, has been proposed by Washington and Moscow.
But the Syrian National Council, the biggest bloc within the umbrella Syrian National Coalition, has said it would not join the talks planned for next month and would quit the Coalition if it attends.
The SNC said it was snubbing the talks because of the ongoing suffering on the ground.
The United States, which backs the opposition, has urged the SNC to drop its refusal to join the talks.
"There have been many ups and downs in this process," State Department spokeswoman Jen Psaki said Tuesday, "but we continue to press for the opposition to have a representative body at the Geneva conference."
Geneva 2 was first mooted in May, but has been repeatedly postponed due to wrangling within the opposition and a dispute about which countries should participate.
The situation has been exacerbated by a chemical weapons attack on Damascus suburbs in August that left hundreds dead.
Washington led other world powers in accusing Assad's regime of using the prohibited weapons and threatened military strikes.
While denying regime troops were behind the attack, Damascus agreed to allow international experts to destroy its massive chemical arsenal as it raced to avert a strike by US forces.
Acting under a subsequent UN Security Council resolution, the Organisation for the Prohibition of Chemical Weapons has begun destroying the weapons in an operation expected to last until mid-2014.
The OPCW said Wednesday its inspectors have verified 11 of 20 sites identified by Damascus.
It added that critical equipment and some Category 3 munitions had been destroyed at six sites.
Under OPCW classifications, these are "unfilled munitions and devices and other equipment specifically designed to aid the deployment of chemical weapons."
In a related development, the United Nations named Sigrid Kaag, an Arabic-speaking Dutch UN assistant secretary general, to head the joint UN-OPCW mission.
An added challenge to the Geneva process has been mounting rebel criticism of the Coalition.
On Wednesday, rebels in southern Syria said it had "failed" and announced they no longer recognise the group.
The video statement signed by nearly 70 groups comes after several key rebel movements in the north announced their rejection of the Coalition in September.
The inability of the Istanbul-based Coalition to secure weapons and much-needed humanitarian assistance has raised the ire of opposition activists and rebels.