Officials said experts were exhuming the grave in the town of Malisevo, 50km south of Kosovo's capital, Pristina, and just half a kilometer from the town's hospital.
So far, multiple human remains and two complete bodies have been uncovered, said Marcia Poole, a UN spokeswoman.
"We presume that these remains are those of Serbs who went missing in a 1998 event," she said. Another UN official said at least seven bodies had been discovered.
The victims appeared to be males, and at least one had his hands tied, the official said, speaking on condition of anonymity. The UN-run Office on Missing Persons and Forensics began the excavations at the site in Malisevo earlier in the week.
The town was once considered an ethnic Albanian rebel stronghold during the fighting with Serb forces in 1998.
"We presume that these remains are those of Serbs who went missing in a 1998 event"
The site is the second mass grave discovered within a month. Last month, UN authorities uncovered at least 22 bodies of people believed killed during the war.
About 500 Serbs and 200 members of other non-Albanian communities in Kosovo remain missing and are believed to have been kidnapped and killed by ethnic Albanian rebels during the war.
Hundreds of people listed as missing from the war have been found in mass graves in Kosovo and Serbia, but about 3000 people from both sides of the conflict remain missing.
Peacekeepers maintain stability
in the face of ethnic tension
Serbian and Kosovo officials have recently resumed talks aimed at establishing the fate of ethnic Albanians, Serbs and others who vanished during the war - one of the most sensitive and emotionally charged issues between the two former foes.
The two sides agreed to accept the Red Cross list of 2960 still missing as their figure of reference. The officials agreed to meet again on 9 June in Pristina.
Nato airstrikes pushed the Serb troops out of the province and forced former Yugoslav president Slobodan Milosevic to relinquish control of Kosovo. The province now is run by the United Nations and Nato-led peacekeepers, although it remains part of Serbia-Montenegro, the successor state to Yugoslavia.
Negotiations on its final status are expected to begin this year.