The fighting took place in the northern Faryab Province. Four women were also wounded in the incident, a Press TV correspondent reported.
The US-led military alliance has confirmed the incident and fatalities.
However, local sources say these seven individuals were all killed in the incident.
The UN says there has been a 15-percent rise in civilian casualties in Afghanistan over the past few months. The world body says 2,777 civilians were killed in Afghanistan last year.
The civilian deaths is expected to exacerbate the already tense situation in Afghanistan where people are furious about the recent desecration of the Holy Qur’an in the US.
Afghan officials have frequently condemned NATO attacks on civilians calling for an end to such assaults.
Civilian casualties have always been a source of friction between the Afghan government and foreign troops, as Afghans blame foreign troops and their military operations for the increasing number of civilian casualties in the country.
About 150,000 foreign troops are currently stationed in Afghanistan.