KANDAHAR, Afghanistan: Australian soldiers in southern Afghanistan shot dead two children tending cattle, local officials said on Saturday as the international coalition launched an inquiry into the incident.

Civilian casualties caused by NATO-led troops have been one of the most contentious issues in the campaign against Taliban insurgents, fuelling public anger and often triggering criticism from President Hamid Karzai.

The two children, aged seven and eight, were killed on Thursday morning as Australian soldiers fought back after a Taliban attack in southern Uruzgan province, said provincial governor Amir Mohammad Akhundzada.

"The children were killed by Australian troops, it was a mistaken incident, not a deliberate one," Akhundzada told AFP, adding that insurgents had first shot at a helicopter carrying Australian soldiers.

A spokesman for NATO's International Security Assistance Force (ISAF) in Kabul said he was unable to confirm details.

"We are aware of the reports and we take all such reports very seriously," he said. "An incident assessment team in Uruzgan is now there looking into it."

In a recent case of civilian deaths, on 13 February, 10 Afghan civilians, including five children, were killed by a NATO airstrike in Kunar province.

Following the attack, Karzai barred Afghan forces from seeking air support from foreign troops in a bid to curb civilian casualties.

Security responsibility for Uruzgan, a restive province where the Taliban insurgents have been holding sway, is being handed over to Afghan forces.

The bulk of Australia's 1,550 troops are based in the province, and are focused on training and mentoring Afghan soldiers ahead of the withdrawal of NATO combat troops by the end of next year.