A patrol had picked up a radio message from the compound calling for fighters to converge on the area to attack the patrol, it said.
“The patrol identified insurgents with weapons on the roof of the compound preparing to attack and in order to protect themselves launched three rockets, all of which hit the target.
“Unbeknown to the patrol, the civilians were inside the compound at the time.”
Two of the wounded, both children, were in a serious condition and being treated at an Isaf medical facility, the statement said.
The authorities are recording a spike in unrest. Previous civilian deaths have angered residents and prompted Hamid Karzai, the US-backed Afghan president, to call on foreign forces in his country to take greater care.
“Isaf deeply regrets the tragedy of this incident when women and children were killed and injured as a result of an imminent insurgent attack from a position where they [militants] would have known women and children were present,” it said.
The incident was under investigation.
Most of the Isaf soldiers in Helmand, a stronghold of the Taliban, are from the UK, which is in charge of Nato forces in the province.
Afghanistan is due to celebrate Independence Day on Monday, but with police launching a major security operation in Kabul, the capital, on Sunday, events are expected to remain low key.
Afghanistan will mark 89 years since gaining independence from Britian.