The International Committee of the Red Cross said 15 civilians were killed immediately and six others died in hospital following the raid in the rebel Tamil Tiger-held Mullaitivu area on Wednesday.
Reports say that more than 30 others were wounded.
Tamil Tiger radio broadcasts said the aircraft bombed a crowded market place in a Tamil village and that many buildings were destroyed.
The Red Cross said bombs fell just two km away from its office in the area.
"The ICRC deplores the fact that the air strikes were carried out in a civilian area," a spokesman said.
'Tiger camps targeted'
A Tamil member of parliament, Joseph Pararajasingham, said the bombing was a tragic and barbaric act and called for an immediate investigation.
However, the Defence Ministry said they would wait for more information before making any decision.
It said the air force had hit only two targets that morning - Tamil Tiger training camps in a coconut estate and in the jungle.
"Whether they had brought civilians to those locations we cannot say," military spokesman Sunil Tennakoon said.
The BBC's Susannah Price in Colombo says the air force often carries out operations to destroy Tiger training camps, and there is no indication yet as to whether or not this incident was a mistake.
Also on Thursday Sri Lankan defence ministry officials said that 10 soldiers were killed when Tamil Tiger guerrillas blew up a military truck in the Mannar district, 150 miles (240km) north of Colombo.
It was the scene of heavy fighting between government forces and the rebels on Sunday.
Country profiles
High casualties in Sri Lankan offensive
(13 Sep 99 | South Asia)
Sri Lanka militia leader killed
(02 Sep 99 | South Asia)
Sri Lanka navy sinks Tiger boats
(16 Aug 99 | South Asia)
Sri Lankan call for unified peace effort
(12 Aug 99 | South Asia)
Sri Lanka: Searching for a solution
(04 Aug 99 | South Asia)
Sri Lankan Government Information Department
Tamilnet
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