Friday's New York Times said several US soldiers were under investigation in connection with the 11 Febuary incident outside the US base at Shindand in western Afghanistan's Farah province.
The paper quoted the base commander, Lieutenant-Colonel Ashton Hayes, as saying the victims were ordinary villagers, not Taliban or al-Qaida suspects, and compensation of $2000 had been paid to their families.
A spokesman for the US military in Kabul confirmed the incident was under investigation.
"This incident has happened; coalition forces were involved," said Major Steve Wollman. "It is under investigation."
Wollman also confirmed that payments had been made to the victims' families, but said this was "not an admission of guilt or an admission of wrongdoing".
He said he did not have details of the soldiers involved, but the probe would cover them and the chain of command.
"It will be a formal investigation into the entire situation," he said.
The deaths could stir animosity
against foreign troops
The New York Times quoted witnesses and local officials as saying the two villagers, named Naib and Rasul and both aged 22, were shot by two American soldiers as they fled across a field where they had been cutting firewood.
It said two witnesses said two US Special Forces soldiers then approached Naib, who was still alive, and shot him dead at close range.
US troops have had a base at the old Soviet airfield at Shindand and the New York Times quoted the local district chief as saying that said the deaths could stir up animosity in the area, a strategic region that borders Iran.
The paper quoted Hayes as saying his battalion was in a "very serious security situation" at the time of the shooting, but he had seen no evidence of Taliban or al-Qaida activity.
Compensation was "not an admission of guilt or an admission of wrongdoing"
US army Lieutenant-Colonel Ashton Hayes
The incident appeared to be a fresh embarrassment for the US military and news of it came even as American Civil Liberties Union made public army files on Friday about fresh cases of abuse of prisoners in Iraq and Afghanistan.
The files showed that US troops in Afghanistan had posed for photos of mock executions with hooded and bound prisoners, but other pictures depicting abuse were destroyed to avert another public embarrassment after the Abu Ghraib prison abuse scandal surfaced in April 2004.
US government criticised
One file said senior Psychological Operations officers had seen US Special Forces troops commit indiscriminate assaults on civilians in May 2004 in two Afghan villages, but an investigation was closed because villagers could not be interviewed as they lived in a high-threat area.
Rights groups have criticised the US government's failure to hold personnel accountable for up to six Afghan deaths in US military custody in Afghanistan since US forces invaded the country in 2001 and overthrew the Taliban.
This month the US military dismissed concerns expressed by a UN rights investigator about allegations of prisoner abuse, saying an internal investigation, which has yet to be made public, had found that detainees were treated humanely.