Defence Minister Stephen Smith says Australia has accepted joint responsibility for an incident in which two Afghan boys were killed.
The governor of Uruzgan province says Australian troops accidentally shot dead two boys aged seven and eight during a clash with Taliban insurgents last week.
"The children were killed by Australian troops, it was a mistaken incident, not a deliberate one," Uruzgan provincial governor Amir Mohammad Akhundzada said, adding that insurgents had first shot at a helicopter carrying the Australian soldiers.
Australian commanders are working with the NATO-led International Security Assistance Force (ISAF) and Afghan colleagues to establish what happened.
Mr Smith confirmed Australia's special forces taskforce was involved, but said he would wait for the outcome of the investigation before commenting further.
"ISAF and the Australian Defence Force have accepted responsibility for this incident," he said.
"It's a tragedy for the families concerned, and both ISAF and the ADF have apologised to the families."
Mr Smith also indicated that Australia would compensate the families of the boys.
"One should expect that in the normal course of events, that at some stage, some form of payment, some form of compensation payment will be made to the families concerned," he said.
"That's occured in the past and it will no doubt occur in these circumstances as well."
ISAF has said its troops opened fire at what they believed were insurgent forces.
Australian Defence Force Chief General David Hurley confirmed Australian special forces soldiers were patrolling the area when the incident took place, but said it was too early to say exactly who was to blame.