The casualties mark the deadliest week of fighting in Afghanistan since the U.S. expelled the Taliban government in 2001.
A spokesman for the coalition, Major Scott Lundy, said the target of Sunday's overnight air strike, Panjwayi district's Azizi village, is "a known Taliban stronghold." The coalition confirmed 20 of the Taliban deaths and said an additional 60 deaths were based on "an educated assessment of the area."
Kandahar Gov. Assadullah Khalid provided a lower tally of Taliban deaths -- about 60 -- but added that 16 civilians had been killed in the attack and another 16 had been wounded and taken to a hospital in Kandahar City.
A man at the Kandahar hospital, Haji Ikhlaf, told the Associated Press that Taliban rebels had been hiding in the village's madrassa, its religious school for boys, and that he had seen "35 to 40 dead Taliban and around 50 dead or wounded civilians" at the school.
"It's common that the enemy fights in close to civilians as a means to protect its own forces," U.S. military spokesman Col. Tom Collins said, reported the AP. "We targeted a Taliban compound and we're certain we hit the right target."
The village also has a mosque and about 30 to 35 mud-brick buildings that house up to 50 family members each.
"I urge people not to give shelter to the Taliban," Khalid told reporters. "These sort of accidents happen during fighting -- especially when the Taliban are hiding in homes."
A Taliban spokesman said all of the casualties in the attack were civilians, Reuters reported.
U.S. commander Lt. Gen. Karl Eikenberry told the AP that the coalition was investigating whether civilians had died in the attack.
More than 240 people have been killed in southern Afghanistan since Wednesday when Taliban insurgents attacked a village in Helmand province, west of Kandahar, using suicide bombs in addition to firearms.
The recent attacks on the coalition and local government have halted post-war reconstruction in southern Afghanistan, and the increase in violence comes less than two months before the 30,000-troop coalition plans to hand over control of security operations to a 16,000-member NATO peacekeeping force.
NATO Secretary-General Jaap de Hoop Scheffer called the Afghanistan deployment NATO's "most important mission" and its first priority.
"NATO will stay the course and the spoilers will not have a chance," Scheffer said Friday.